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Mastering good cash flow management is the key to success for small businesses looking to increase their bottom line.
While invoicing has an important part to play in understanding and managing cash flow, it’s just one piece of the puzzle.
To help you put all of these pieces together, we’re here to demystify cash flow management - helping you gain a deeper understanding of your company’s financial health.
Here are 5 practical cash flow management tips that will help you to simplify the process and ensure you know exactly what’s coming in and out of your business.
If you want your business to be built for success, make your invoicing process a priority.
This will require a little planning, but try not to overcomplicate it. You provide a product or service, you get paid for it. Simple.
Set up an invoicing system that sends out invoices promptly once an order has been processed, and be firm and upfront with your payment terms. Also, make sure you’re on top of chasing up any outstanding payments.
Investing in digital invoice software can help you to simplify and automate the whole process, making sure accounts are kept up to date, as well as identifying any cash flow issues in advance.
If you’re mixing personal and business expenses together, this can have a detrimental impact on managing your company’s finances.
Why? Well, in order to better manage your company’s cash flow, you need to know exactly what the business is spending and generating without muddying the waters with your personal finances.
Set up a dedicated business account where all money related to your business goes in and out. You’ll then have a clear view of your business’s expenditure and should be able to forecast for future outlays.
As an added bonus, it can help you gain a better understanding of your personal finances, too!
There are always going to be unexpected expenses and, for businesses with poor cash flow, they can be crippling.
The remedy is to work towards building a business cash reserve or rainy day fund.
Having a solid handle on cash flow can afford you the opportunity to put some cash aside, giving your business a certain amount of cushioning if something unforeseen happens - this could come in the form of an economic downturn or expensive equipment repairs.
That’s not the only perk, though. A business cash reserve can also put businesses in a position to take advantage of investment opportunities.
While this may require some cutbacks in the short term, the long-term pros of having some expendable cash will go towards strengthening your business.
A quick way to improve your company’s cash flow is to analyse and cut any unnecessary costs.
Take the time for a deep dive into all of your small and significant outgoings so you know exactly what your cash is being spent on.
When you’re scrutinising your business overheads, it’s important to figure out which ones are essential and which ones are luxuries. In the name of lean business operations, cut back on the non-essentials and you’ll be surprised at how much you can save.
Obviously, with essential expenses, you can’t avoid paying them - but you can do your research and barter to make sure you’re getting the best value for your money.
Keeping track of business finances can be daunting and overwhelming, particularly if you’re time-poor or don’t have a good eye for numbers.
In these instances, one of the best cash flow management decisions you can make is to simplify your accounting by outsourcing it.
With the right support from an accountant who understands the needs of your business, you can better manage your business’s cash flow - leaving you to focus on other areas of business growth, such as sales.
Cash flow management is about more than just sending out invoices. It’s about having a sound understanding of the health of your business’s finances, so you can make informed business decisions based on your expenditure and plan for the future.
If you need some help getting your company finances in order, get in touch with Harlands today.