Cash
Disbursements
Collection of money is
important. So is how you spend it. Both affect your business in the
short-term and long-term.
A business can use its
money for a variety of purposes. The spending of cash is called cash
disbursement. Like cash receipts, cash disbursements can be grouped
into three major types:
- Cash paid for operations
- Cash paid for investments
- Cash paid on financing
Operations
The first major use of
cash is cash paid for operations. These disbursements are usually
paid on a regular, recurring basis in operating a business and can
be planned for. Cash paid for operating expenses, such as rent, payroll
and supplies; cash purchases of inventory; payments on accounts payable
(money you owe others); and income taxes.
An important tool for managing
the expenses and cash disbursements of operating your business is
a budget. Setting up projected expenses as spending targets, and then
measuring how you are hitting the targets, is crucial to keeping control
of your financial resources.
Investments
The second major use of
cash, is cash paid for investments. This includes money invested in
stocks or bonds of other companies and purchases of equipment and
buildings. These disbursements are usually at the discretion of the
business owner and can occur at any time.
When most small businesses
start, they do not have the financial resources to invest in much
more than operating the business. As time goes on and such resources
are available, wise investments can be made with profits of the business.
Before investing profits which you may need down the road, consult
your advisors, especially your accountant.
Financing
The last major use of cash
is cash paid on financing. This includes payments on loans and leases,
cash purchases of your stock, or payments of dividends on your company's
stock to investors. These payments, generally made as a result of
some type of prior agreement, are predictable and can be planned for.
Understanding the factors that affect the amount and timing of these
payments is critically important in forecasting cash flow.
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