How Does Cash Flow Management Analyze Business Loan Need?

cash flow management for business loan

Cash flow management is the act of balancing business income against its expenses. The ultimate goal is to have positive cash flow at all times making the best possible use of its cash assets. Once you understand the cash flow system for your company, it is easier to decide if a business loan is required or not, or how much amount is falling short to pay for company expenses.

Many times cash flow is confused with profit whilst they are entirely different. Cash flow is the movement of funds in and out of your business whereas profit is what is left after deducting expenses from Business revenues.

Sometimes the business may be profitable but there is no sufficient cash flow, which can threaten the long-term survival of the company. Hence, it is important to have the proper cash flow to sustain the operations of a business.

How does Cash Flow Analysis Work?

Making a cash flow statement is the best way to start cash flow management. It is different from the balance sheet or income statements; they cover different aspects of the business’s finance. It is advisable to analyze cash flow every week or ten days to gauge the inflow and outflow of the same.

To do a cash flow analysis one has to know the cash in hand at present and the amount of cash the company may receive in the period for the analysis is done (could be a day, week or month), and then deduct the number of anticipated expenses or payments in the analysis period. The end result of this will be the status of cash with the business.

If the status shows that additional cash is required for company expenses, then you can look for ways to seek funds, such as business loans, financial sponsorship/partnership etc.

How to Effectively Plan for Cash Inflow and Outflow?

Now is the time to have a plan in place to effectively manage cash.  For Instance, if the result of the analysis drawn is a shortfall in cash then the business budget needs to be reviewed to see if there are any expenses that can be reduced or deferred.

To cover the gaps in cash flow one can consider a business loan as an option, whether short-term or long-term. Short-term loans generally have a repayment schedule of less than 1 year, one can obtain a business loan up to 50 Lakhs of rupees depending on the financer.

When you apply for a business loan, be careful to understand the impact of loan payment on your monthly expenses which will affect your cash flow management.

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