To establish your staffing startup, you need a robust understanding of the operation’s underlying financial components. That includes cash flow. While you might launch the venture based on your strengths as a recruiter, it’s important to learn at least the basics of this core accounting topic.
Not quite sure what cash flow is? Don’t feel bad. You’re not alone. One study found that while around two-thirds of business owners reviewed figures like revenue and expenses, less than half (45%) looked at cash flow figures.
Don’t ignore this critical statistic. To convince you of its importance, here’s what you and your staffing startup should know to better understand cash flow:
Why is tracking cash flow important?
Your focus is on your clients and the job candidates who come to you for help advancing their careers. However, in order to provide this service over the long haul, you also need to worry about the underlying financial well-being of your company. By paying attention to the business aspects of your staffing firm, you ensure that you will stick around for years to come.
Cash flow plays into this overall focus. Along with other financial documents, like your P/L statement and your balance sheet, a cash flow statement represents a key gauge of your firm’s health. You need this data to understand your overall position.
Meanwhile, cash flow information is central to your daily operations. You need available money to pay bills, cover payroll and plan your long-term future. Maximizing your cash flow allows you to secure stability and position yourself for sustained growth.
How do you track cash flow?
The specifics of tracking cash flow get easier when you have a background in accounting. If you don’t have this expertise, you should look for some help. Start by getting guidance from a third-party accountant. Once your staffing firm reaches a sufficient size, you can consider hiring in-house help.
While the particulars of tracking your cash flow will involve detailed accounting information, there are some basics you should have in mind going into the process. Crucially, it’s important to realize that cash flow differs from profit/loss.
Broadly speaking, a P/L statement will involve some non-cash items. These include accounting concepts like depreciation and amortization. Meanwhile, cash flow focuses on the movement of cash through your organization — what comes in and what goes out.
To create a strong system for tracking cash flow, here are a few tips you can follow:
- Create solid reporting procedures
- Involve everyone in the company in gathering information
- Don’t wait until tax and quarterly deadlines — make cash flow calculations routine
- Use technology to gather and analyze cash flow data
- Educate yourself on the specifics so you can gain a deep understanding of your firm’s cash flow
How can you improve your cash flow?
Your first step should be to create a robust system for determining and analyzing your cash flow. From there, you have to learn how to use the information effectively. If your cash flow is falling short of your expectations, what can you do to improve it?
Here are a few steps you can take to boost your cash flow:
- Look for ways to trim costs
- Search for methods of improving productivity
- Focus on high-margin growth
- Expand revenue to bring more cash into your business
How can you protect your cash flow?
Cash flow is subject to sudden changes. The unexpected loss of a major client or a major emergency expense can put your cash situation at risk. As such, you need to come up with ways to minimize the odds that a dire event will undermine your entire operation.
You can do this by building a flexible funding plan. By establishing connections with strong financing partners ahead of emergencies, you can have the right safety nets in place. Meanwhile, a diverse funding program gives you options that can protect your business and unlock your potential.
Frontline Funding can contribute to this flexible financing effort. That way, you can protect your cash flow and provide the peace of mind you need to push your staffing firm to the next level.
Contact Frontline today to learn more.