One of the best ways to ensure your small business’ success is through well-managed finances. For many small businesses, financial success is balanced on a fine line between accounts receivable and accounts payable. While a delicate balance to maintain, businesses could practice it and be largely successful—at least, until 2020.
Studies show nearly a third of businesses fail because they run out of cash. Adding the economic shock of the pandemic meant even the most carefully managed finances risked falling prey to a cash flow crisis.
Now, more than ever, cash flow is king, and it’s imperative to keep it in check with the right practices and the right accounting software to avoid issues. Our experts share 7 tips to keeping your cash flow in check using your accounting software.
1) Keep a Cash Flow Forecast
Set targets for the next six to 12 months to keep track of finances and avoid any shortfalls. The most basic way to set up a cash flow forecast is to maintain a simple report listing income and costs on a monthly basis. Accounting software can also help you keep track of trends in spending. Take note of any seasonal variations, such as heating bills that rise in winter. Factor in fixed and variable costs to your cash flow forecast and be realistic: Include every item.
2) Stay on Top of Payments
Send out invoices promptly and be quick to chase overdue bills. It’s also worth establishing clear payment terms with new suppliers before you start doing business with them. Thirty days is standard but, in a pandemic, you may be able to negotiate shorter terms.
Get to know your customer payment dates and don’t ignore irregularities or delays; a poor paying customer might be about to go bust. Knowing when you’re due to be paid for a product or service will help you keep on top of your cash flow.
3) Watch Your Stock Management
Efficient stock management is just as important as managing cash flow. Reconcile stock records at the same time you reconcile your bank account—whether that’s weekly or monthly—so you know which items you have left in stock and which require reordering.
An efficiently managed stock control system will have a positive impact on your cash flow by preventing holding too much stock and having all your money tied up in it.
4) Stay Friendly with Lenders
Many businesses need a cash boost from a bank or lender every now and again and might need credit or an overdraft to get up and running. Stay on good terms with your financial institutions, keeping them informed of any unforeseen outgoings or changes in forecasts.
By developing a good relationship based on trust with banks and lenders, they may be more likely to treat you favorably should your business need future financial assistance.
5) Access Credit
If your business is growing rapidly enough to cause concern about having enough money to meet your overhead, seek access to a line of credit from a bank or financier, such as an overdraft or short-term loan. In many cases, banks are willing to lend to a business if they can see a draft service contract or letter of intent.
Once the client pays, then you can pay your debt. You will only have to pay interest to the bank or financier for the amount of time you actually need the cash.
6) Tighten Up on Outgoings
Assess the frequency with which you pay suppliers, tax bills, utilities, etc. Is it possible to pay in installments or make terms more flexible? You may be able to negotiate deals that are more favorable to your business.
Also, watch the little expenses that over time can add up. You might be surprised how watching pennies helps the dollars shore up.
7) Anticipate Problems Before They Happen
Identify potential cash flow problems in advance by regularly updating your cash flow forecast, monitoring market conditions, keeping an eye on customers and suppliers who may be in trouble, and taking action as soon as you see a problem. By using your accounting software reports to keep on top of your cash flow, you’ll be able to deal with problems quickly and efficiently. For additional guidance, consider speaking with an accountant, investor, or business mentor.
Be Prepared With the Right Accounting Software
Your business legitimately cannot afford to lose track of cash flow and finances. The right accounting software can help organize expenses, bill clients, and keep an eye on the bottom line. Accounting software can’t prevent every cash flow crisis, but it can provide the insight you need to prepare you for whatever the future might look like.
Find an accounting software solution that fits your business needs. Talk to the experts at PositiveVision today.