Cash flow is the lifeblood of your business. Without a steady stream of money flowing through your operation, you’ll find it difficult to pay vendors and employees, invest in growing your company, and use valuable financial tools that could help increase your profits. Use these quick tips to start getting serious about your company’s cash flow.
Even if your Company’s sales are increasing, when money is going out faster than it’s coming in, your business can begin to struggle. Poor cash flow can end up getting your business stuck in the mud.
Here are three easy tips for improving your cash flow immediately:
Require deposits on large orders
Collecting accounts receivable can be a frustrating issue for any business. You work hard to build good business relationships, and you want to give a good faith extension of credit to valued partners, but long response times and late payments can put your business in a tough spot. Some common causes of cash flow issues faced by many businesses are:
– A large portion of receivables from business clients can exceed 90 days before payment is received
– Inefficient internal processes lead to significant delays before a customer receives an invoice. In some cases, the invoice is never received!
– A lack of formal credit policies
Not only are customers slow to pay, but many companies are often not properly organized enough to get payments quickly.
Charging deposits on larger orders is a fair agreement for both sides. A 50% deposit gives you the financial freedom to move forward without having to operate on credit and also lets your customers delay payment until they are 100% satisfied.
Pro Tip: Hiring professional accountants to complement your in-house bookkeeping can optimize your accounts receivable department by improving the billing process and streamlining communication with customers.
Analyse your cash flow with software and other tools
Adequate working capital is a critical component of business growth. If your business is not in a strong working capital position, you are going to find it difficult to maximize profits and growth. A profitable bottom line at year-end can feel misleading for a business that is struggling with cash flow.
Using various software packages or a employing the services of a professional accountant to help analyse payroll, accounts payable and receivable, and other financial aspects of your business can help you determine:
– where money is coming from
– where it’s going out
– the steps it would take to optimize it all
The result could be improved cash flow and profits for your business.
Consider high-interest savings accounts rather than brand-new upgrades
As a small business owner, it can be tempting to want the latest in technology, the absolute best equipment, and all of the bells and whistles that come with running a successful company. However, holding back on some expenditures in order to bolster your cash reserves can provide many benefits.
Instead of upgrading to new equipment, try repairs or buying used for the time being. Rather than getting the latest software, try for a budget version until you’re more stable. It might take some extra legwork on your side, but it will be worth it in the end. The money that you save can be put into an interest-bearing savings account. The cash will then be available on demand to finance a new project or to help your business grow.
Cash flow management is currently an issue for many businesses in Newfoundland & Labrador as our province deals with a sluggish economy. Whether it’s overdue receivables, or a lack of insight into cash flow, many companies struggle to manage their money. Working with a certified accountant can help to simplify these difficult processes and take away the stresses of dealing with them day in and day out. If you’d like to consult a professional accounting firm that can help clarify these issues for your company, contact Clarified Accounting today.