Understanding Cash Flow: Types of Flow, Types of Activities, and Managing Cash Flow

Definition of cash flow – In general, in the world of economics there is the term cash flow. Actually, the existence of cash flow is to track how the flow in and out of a company when running its business.

When viewed from this understanding, of course, cash flow is not only important for a company, but for oneself it is also very important. This is because to find out how the velocity of money is being run.

Therefore, you also need to know what cash flow is . Many things can be learned from cash flow . Starting from the understanding of cash flow to other sundries that are still closely related to cash flow .

No need to be confused if you don’t know everything related to cash flow, because in this article there is an explanation of everything related to cash flow . In order for you to be clearer, here is an explanation.

Definition of Cash Flow

Before discussing more deeply about cash flow . The first thing we will understand together is the meaning of cash flow. Where knowing the meaning of cash flow can be used as a foundation to facilitate other things that are still related to cash flow .

Cash flow is a statement of cash flows which consists of income and expenses made by a company in a certain period, in which every activity carried out by the company will enter into cash flow .

Therefore, cash flow reports are included in one type of company financial report which can provide detailed information about cash inflows or income and cash flows or expenses owned by a company.

As previously explained, in the cash flow report there will be all the activities carried out by a company. Starting from the existence of investment funds, company funding activities to operational activities such as production to distribution will be recorded in full in the cash flow report .

With the existence of cash flow , it is expected to know information in real terms starting from cash inflows to cash disbursements in a company. With this information, it will be easier for the company to find out the condition of the company’s cash in the future so that it can be used as a reference for development to the next stage.

When viewed from the Big Indonesian Dictionary or KBBI , cash flow is the expenditure and income of company cash within a certain time range, such as daily, weekly or other time range. Meanwhile, according to Harvard Business School , cash flow is the net balance of cash that has entered and cash that has gone out within a certain period of time.

The cash flow report also has two results, namely positive and negative cash flow reports. Where to report positive cash flow is cash flow which can show if the money coming in to a company is recorded as more than the money issued by that company.

Meanwhile, negative cash flow is a cash flow that shows if the amount of money going out to a company is more than the amount of money coming into the company.

When a company experiences continuous negative cash flow conditions, the company has experienced losses, thus impacting the company’s bankruptcy. However, when a company shows positive cash flow conditions on a regular basis, this indicates that the company has experienced continuous development.

Thus, it can be concluded that the recording of cash flow reports is one of the financial reports that is very much needed and can have an influence on the development of the company.

Type of Flow Report Cash Flow

Cash flow is divided into two types of flow, namely the incoming flow in the report and the outgoing cash flow. The flow of money in is known as cash inflow , while the flow of money out is known as cash outflow . So , for more details, here is a review of cash inflow and cash outflow .

Cash Inflow

Cash inflow is a cash flow stream which contains all types of transactions that can provide income to the company. When there are transactions that enter the company, the company’s capital will also increase so that the company’s growth can also continue to increase over time.
This type of cash flow will provide data to the company so that it can more easily know the income that is in a certain period in a transparent manner, which when more and more income enters the company, it can be interpreted that the company has won the trust of consumers and investors.

There are several examples to make it easier for you to understand cash flow. For example, such as collection of accounts receivable, sale of goods or services, income from other income and rent, income from invertase, obtaining loans or from third parties and selling fixed assets.

Cash Outflow

Furthermore, there is a cash outflow which can be interpreted as a cash flow which contains various kinds of transactions that can lead to the company’s cash disbursement burden.

The existence of these expenditure transactions has a purpose in order to maintain the company. When a company does not spend money or capital, it will be difficult for the company to survive in the midst of existing developments.

Therefore, companies also have to plan cash expenditures more wisely. It is hoped that the company will not experience any losses.
Some examples of cash outflows are the purchase of fixed assets, expenses for employee salaries, expenses for raw materials, taxes and rent payments, expenses for sales administration, debt payments and repayments originating from entrepreneur investments. All of these expenses will not cause the company to suffer losses as long as it is done wisely.

Types of Activities in Cash Flow

There are several types of activities contained in the cash flow. There are three types of activity in cash flow. Each type of cash flow activity is indeed very important for you to know. The following is an explanation of the types of cash flow that you can read in full.

1. Operational Activities

Operating activity is a statement of cash flow or cash flow that has reference to cash that really comes from the company’s business activities. These operating activities can be interpreted as a type of cash flow report which consists of all operational activities of the company.

In this activity, the cash flow statement will only show net income. While the function of the existence of these operating activities is to maintain the development of a company’s business.

Then, for examples of cash flow operating activities, such as employee salaries, taxes on sales of goods or services, purchases of goods used for production, machine maintenance and other operating expenses. Therefore, in order for operational activities to run optimally, the process of preparing cash flow reports must also be carried out quickly and accurately.

2. Investment Activities

Next, there are investment activities which can also be regarded as the company’s net cash obtained from the company’s investment activities. Investing activity is a cash flow statement which contains sales or purchases of fixed assets.

Currently, almost all companies that have experienced development will usually carry out investment activities. Generally, investments will be made in company assets that have an estimated life of more than one year. With the investment cash flow activity, the transaction value that can affect cash must also be included.

Some examples of this investment activity are the sale or purchase of fixed assets, long-term investments, purchase of equipment for companies, maintenance of companies and so on.

3. Funding Activities

Furthermore, there are funding activities which are reports or cash flow activities obtained from additional company capital. In essence, this activity will have a reference to the cash flow that moves between the company and several owners, investors and creditors.

Thus, it can be concluded that financing activity is a net cash flow that can be used to finance several things in a company. For example, such as equity, dividends and debt payments.

When calculating the funding cash flow, it would be better if you include the value of the reduction or the value of the addition of cash sourced from owner’s equity and long-term liabilities. Some of the things that are included in funding activities are bonds, bank loans, issuing shares and depositing initial capital.

Easy Tips for Managing Cash Flow in Healthy Conditions

Financial management in good condition is indeed very important to be able to maintain stable financial conditions. It is undeniable that managing cash flow to stay in good health requires struggle. So to make it easier for you in the process of managing your cash flow to stay healthy, here are some tips you can do.

1. Set Priority Levels On Spending

The first thing you can do is record and account for any expenses you have. Where there are expenses that can have a big impact on the business and there are expenses that don’t really have an impact on the business.

Therefore, before making a cash disbursement decision, try to pay attention to whether the expenses made can have a developmental impact on the business or maybe there are expenses that can be postponed.

This is where it is important to know the level of priority spending. By knowing your spending priorities, it will be easier for you to make decisions about every expense you have.

2. Know the Production Costs and Existing Expenditure Costs

Next, you also have to know in detail how the total expenses are during the production period so you can avoid mistakes in determining the selling price. In calculating the right selling price and adding business profit, the cash flow in your business will remain in a healthy condition.

Another way that can attract many buyers is to provide discounts on the products to be sold. Even so, keep in mind that the discounted price should not be below the cost price.

3. Implement Each Product Bundling Strategy

Product building or merging of products is a sales strategy that is expected to attract every consumer. Where later when consumers will buy one product will also get additional from several other products.

The benefit of implementing a product bundling strategy for business people is that the number of products sold can be more so that it will have a sizable impact on increasing cash flow. For example, the sale of food packages complete with drinking water has quite affordable prices compared to the regular menu.

4. Give a Higher Price Offer

The amount of profit earned is also determined by the selling price of a product. With a high price, you will also get a fairly high profit. This will allow the price not to fall too far at the price set when there is an offer by the consumer.

Even so, it should also be noted if the price you set is not much different from the standard price on the market.

In addition to being able to attract consumers to buy the products you sell at high prices. Where you can make a difference with other products, starting from attractive packaging, the best service, bonuses and more.

5. Encouraging repeat purchases

Of course, we also realize that the more products we sell, the more profit we will get. By encouraging consumers to make repeat purchases, of course, it will provide more opportunities for you to be able to get products sold on a larger scale.

The easiest way to attract sustainable consumer buying interest is to provide a 10-time buy program with a one-time bonus within a span of two months.

6. Delaying the Addition of Inventory

Inventory in business is very important. However, to be able to increase inventory in a business, you also need to spend money from cash flow in a large amount so that it has enough effect on the business that you are running.

When adding inventory doesn’t really affect the profit you get, it would be better if you decide to delay buying it. At least wait until the cash flow in your business has a large enough surplus.

7. Perform an Evaluation to Maintain Cash Flow

By conducting regular evaluations of cash flow reports , you will also find it easier to detect problems that occur in business finance. Even though sometimes at first glance they are still in good health, it is not certain that in cash flow they are really healthy.

8. Be consistent

When you have carried out evaluation actions and have carried out the improvement process, the next thing you can do is always be consistent in implementing regular evaluation actions. When you don’t carry out consistent evaluation actions, there will most likely be problems coming to your business cash flow. Therefore, being consistent in carrying out the evaluation process is indeed very important and so needed.

9. Use accounting software to maintain cash flow

It is undeniable that managing business finances should not be done carelessly because it might impact and affect business progress. Therefore, you can try using special software or applications that can make it easier to calculate incoming and outgoing transactions in cash flow. Where currently there are lots of software or applications that can be used to help maintain cash flow in good condition.

Those are some easy tips that you can apply to maintain good cash flow conditions so that they have an impact on the development of the business that is being run. Hopefully all the discussion in this article will be useful for Sinaumeds.

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