Every business needs to invest in the management of its cash flow. Not doing so could lead to serious financial complications for your small business. You can define cash flow as the cash or cash equivalent that is flowing into and out of business. The positive cash flow indicates that your business earnings from clients and customers are more than what you spend on your vendors and other expenses. The negative cash flow means you have problems, and you need to invest in efficient cash management for your business.
5 Common Cash Flow Complications Small Businesses Face
1.Less than Enough Cash Reserves: A business should have at least six months of working capital to deal with unexpected situations.
2.Not Having a Cash Flow Plan: The cash flow plan helps businesses in dealing with a gap between business’ incoming and outgoing cash flow.
3.Growing Business Without Check: Spending your cash on up-front costs to fulfill customer demand that is non-existent. It may happen if you want your business to grow too fast.
4.Not Keeping an Eye on Cash Flow Projections: You need to keep a keen eye on business’ cash flows. Experts advise to do it at least once a month. Successful businesses do it weekly or even every day. Maintain a central document to see the overall cash flow picture.
5.Inefficient Pricing: Charging too much will scare off your customers. Charging too little will diminish the value of your products. Your income will also be low.
Tips For Effective Cash Flow Management
Open a corporate bank account: Pay your vendors and accept payments from your customers using this account. Make sure you will get an interest on the money in this account. Keep the money in this account accessible at all times.
Implement Online Accounting Software
Using online accounting software, you can monitor and manage business’ cash flow from anywhere. It is highly useful to owners on-the-go. These tools are not expensive. You can subscribe to the latest online accounting software by paying as little as $9/month.
Send Invoice on Time
If you want to avoid cash flow problems, start by sending invoices promptly. Get your invoices under customers’ eyeballs before the details of the transaction slip out of their minds.
Get Timely Payment
You can maintain business’ cash flow by asking your customers to make timely payments. Online invoicing software like One Accounting Software shows you the current payment status. You can send email reminders to the customers for outstanding payments.
Manage Your Payments to Vendors
If you pay your vendors late but within the due dates, cash remains available to you. It also earns interest for you. Use this trick to pay your recurring expenses on the due date. You may need to set up a direct debit to make this happen smoothly. Make sure that it does not backfire on you or you will have to pay late fees.
Stagger Business’ Payments Over a Month
For a small business owner like you, it may not be convenient to pay all your payments on a particular day. Think of spreading them out, let us say, over a period. You could use your online accounting software to track cash flow and digital baking to set up automatic payments for the purpose. It will ensure that you ready cash in your hand to meet the unexpected or pounce on an opportunity to make a few more bucks.
Make Effective Use of Inventory
Use your accounting software to manage your inventory effectively. Maintain your stock levels at optimum levels to keep your investment low. Money invested in inventory is not going to make a profit for you unless you sell your products. Read the market trends and keep it at an optimum or minimum level.
Maintain Cash Outflow to Minimum
Instead of replacing office and capital equipment, think of fixing them. If you must replace them, invest in reconditioned or used equipment in working condition or rent them.
You also need to automate as many tasks as possible. It can also save you a lot of money and effort. Online accounting software systems are affordable and reliable. Use it to streamline the non-core task of your business.
When you use online accounting software to manage your cash flow efficiently, it takes your mind off the accounting and liquidity in the business. It enables you to focus on the prime goals of the business and confidently tackle unexpected situations.