Being a business owner comes with difficulties, regardless of in which field you are. One of those problems is handling cash flow. A poor cash flow management and accounting will get you out of business really quickly. Whether you have just started your company or have been running it for years, a good cash flow management strategy is always a good thing to implement.
Cash flow is the life blood of any venture. These tips on accounting and cash flow management will help stay healthy and profitable for your company.
1. Know your break-even point
Of course you don’t want to break even as a company. You want to make as much profit as possible! But you need some targets to get off profiting. Make sure you know exactly how much money your company needs to make for profit.
Do not bear in mind just a rough estimate of your expenditures. Calculating an exact number is better for your break even point. This will help you set your business goals, pricing out your products, and more. Your break-even point will also help you understand how small increases or decreases in prices will impact the bottom line of your business.
2. Send your invoices on-time.
If you don’t reimburse them your clients won’t pay their bills. Don’t wait to send the customers invoices. The longer you need to raise, the longer you’ll be going without the cash you need to run your business. Some of your clients might even appreciate how you are on top of things.
If the time has passed and you haven’t heard anything about payments back from your clients, send a note. When it comes to gathering you can never be too careful. Know you don’t have to feel bad about earning money in a timely way. There is nothing negative about it. That’s business. And you need to run your business with money!
3. Practice early payments.
You can send your invoices as early as you want, but customers sometimes don’t pay when they should. There are however items that you can do to allow your customers to pay as quickly as possible. Consider offering them incentives such as discounts, or freebies.
It may not encourage everyone to pay early, but some will certainly notice. This will help you consistently bring in more money which will help you pay your own bills in a timely manner. Your buyers would love to get bonuses while avoiding late fees too!
4. Lease equipment when possible.
Diminishing your investments is one of the most successful ways to help handle your cash flow. But that is said much better than done, right? Some of the costs are actually unavoidable. Therefore you need clever ways to reduce your operating costs.
The equipment you use in your day-to-day operations may be one of the biggest expenses, depending on what kind of business you have. Without equipment, you can’t run your company, but you may have the option to lease some equipment like vehicles and computers. In leasing you get the latest technology, and sometimes the most powerful equipment. You will use those leases on your corporate taxes as an added bonus.
5. Create a payment plan for your clients
Your relations with your customers are boosting your company. But if you run a service, your clients may not get any money until after you have done all the work they need. That limits your access to cash, especially if it takes a long time to complete your services. Consider creating some kind of payment plan for your customers, so that you can access cash more steadily.
For instance, if you are running a service business, it is always best to start by requiring clients to make a down payment. Once you have begun your services, they can then pay more, and they can pay the full balance once the work is complete. It helps you get the money you need over time, rather all at go.
6. Make your Payments in the final moments
If you have cash, keep it on for as long as you can. That is why it is important not only to have your customers pay as soon as possible but also to pay as late as possible for your bills. You wouldn’t want to make late payments, of course. You just want to extend your business account with the amount of time you have money.
Only schedule them to stop missing payments. The last day before the payments are due you can have them scheduled.
7. Allow for division of labor
Monitoring cash flow is time-consuming when you are doing it right. But as an owner of a business, you are strapped for time as it is. You might want to give an employee the task of monitoring your accounts to ensure that your cash flow gets the proper amount of attention. The person should be as trustworthy and competent as possible about finances and accounting.
You still want to know, of course, what happens to your cash flow. Just because you have someone else in charge of that doesn’t just mean it’s their responsibility. You will determine which information the monitor needs to tell you is relevant. Fixing revenue targets is a good idea. The dashboard will alert you each time you reach those targets.
8. Don’t pay all at once.
When you pay all of your bills every month on the same day, the cash flow is hurting. This is achieved by many business owners, because it’s easy. But it complicates budgeting, and ensures that at certain points of the month you have less access to cash.
Try spreading out the recurring payments, instead. Schedule them throughout the month, not at the beginning or the end of it all. Your corporate account will take less of a hit. Only make sure that you agree on payment dates which make sense if the bills are actually due.
9. Don’t Spend all your Cash
Just as you should always have emergency cash on hand for your personal finances, cash reserves are required on your company. The best thing you can do is save up the business costs for three to six months. This way, you don’t have to sweat it when you end up going through a slower period of business or you have some unforeseen expenses. Your cash reserves will keep you afloat for a short period of time even when you have little or no money coming in. Just make sure that you work on replenishing your cash reserves soon after you have used them
10. Look beyond the present
A key part of your cash flow management strategy is always looking ahead to how the financial situation of your business might change in the future. You’ll know how your revenues are expected to change over time by monitoring your projected profits. You should also monitor circumstances external to your business that could affect you. For example, it is important to keep an eye on the economy at large. If there’s a recession around the corner, you’re going to want to know, so you can quickly start preparing.
During the last financial crisis of 2008, small businesses were particularly badly affected. If you experience another recession while you’re in business, you should prepare for the worst. It’s moments like this that you’re going to be happy that you’ve had some cash reserves to hold you up!
It can be a long way to become a profitable small business. But you can do it, with these principles in mind! Make sure you are always looking ahead and tracking revenue patterns. Hang on to as much revenue as you can without being penalized for as long as you can. And if you find areas where cost cutting can be achieved, do it.