Advice for a small business on managing cash flow
Posted on 27th April 2022 at 16:24
Introduction
Effective cash flow management and cash flow forecast are essential for any business but especially for a startup or small business in order for your business to deal with any situation that could arise. A business must be able to weather any unexpected expense or loss that may occur, and this is only possible with a healthy cash reserve. Small business advice on managing cash flow give small businesses an insight in to maintaining an intact cash reserve that help cushion the business in the event of such events.
Remember the saying cash is king because without a steady flow of capital you will find it hard to keep the business afloat, let alone grow your business.
Invoicing
This is an all important part of a staying on top. Accurate invoicing is essential to ensuring you receive payment as quick as possible from customers. To guarantee accuracy and reduce delays, an automated invoicing service maybe a worthwhile investment.
Even if you are a small business you have to learn to be direct regarding your payment terms and not be afraid to take action when necessary. On time payments provide your business with a sustained working capital, so an efficient and polite invoicing strategy will help your business avoid the constant struggle of chasing after payments.
Another good habit to cultivate is to keep an eye on the creditworthiness of your customers, which you should monitor throughout your business relationship. Having a clear idea will help you best prepare for a looming payment issue and take the necessary action.
Keeping books up to date
Keep your accounting information up to date to help avoid cash flow problems, as it will give you a clear idea of your company’s financial health. This knowledge is important as it can be used to forecast future cash flow. It is also good to conduct regular bank reconciliations so that you have a realistic idea of the money in your bank account.
Inventory management
Inventory management is a helpful way to keep a working capital as you can assess if your cash is tied up in any assets that are obsolete. Then you can make a decision regarding selling that asset at a lower value, thereby liquidating cash that can contribute towards a healthy cash flow.
Cash reserves
Building a cash reserve is a smart way to manage cash flow as it provides you with support and insulation to handle unexpected events, if they should arise. It also provides you a working capital that will serve you well when it comes to expanding your business. Cash reserves provide you with means for the continued survival of your business.
Using accounting software
Though it may seem like a steep investment initially, accounting software provides an invaluable service, being accurate, quick and working on current data, so that you always have a precise overview of your business finances. It simplifies the invoice process, which is essential, while a good accounting system will also allow you to connect your company’s assets and inventory for convenient management.
Reviewing and forecasting
Reviewing and forecasting is vital for a company to make short term, medium term and long term business plans. Forecasting helps to anticipate how much money is needed to make certain investments and how much money can be put aside to pay off debts on time. Reviewing and forecasting gives small business owners a precise overview of expected income and planned expenditures.
Hiring a professional accountant
If you want an efficient cash flow management without the trouble and hassle of handling it yourself, hiring a professional accountant will definitely ease the burden. An accountant will keep accurate data on accounts receivable, your working capital, pending to pay for purchased product or service. You can have the services of an experienced person from an outsourced accountancy service which is more cost effective than hiring permanently.
Conclusion
The advantages to effective and efficient cash flow management are broad with the most important fact being that it ensures your business a chance at survival not matter the market situation. Being prepared to deal with any eventuality while having enough cash reserve for business expansion are some of the main goals small businesses strive towards.
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