There is an old saying in business that cash is king. What is meant by this is a healthy cashflow is necessary for a business to survive and prosper. This is the reason that cashflow is such an important topic for a small business owner. There is much to know about managing cashflow for any new business, regardless of your size, and there’s always something new to be learned for the owners of established businesses.
Managing Cashflow for the Small Business Owner
This article is meant for the small business owner to help them understand managing cashflow and the importance of cashflow. There are many different types of small businesses, for example retail businesses and service businesses, so this has been written as a general set of guidelines that all small businesses can use to help manage cashflow. Here are our tips for managing cashflow and preventing poor cash flow.
Managing Receivables
We put managing receivables as the top item on our list because receivables equate to cash coming into your business. Any business wants cash inflows at a consistent and predictable rate, but it doesn’t always work out this way. A lot of businesses operate by providing credit to their customers, which in itself is not a bad business practice. The problem is that there is often not a lot of incentive for the customer to pay an invoice in a timely manner.
This leads to poor cash flow. A way to get around this is to be careful not to run your business like a bank or lending company. Instead, it can be wise to let other companies take on the risk of collecting debts so your company can get immediate cash flow. A great way to do this is by accepting credit cards. There is a price to pay for using credit cards, which is a downside to the adoption of accepting credit cards, but often the reduced risk and increased cashflow more than makes up for this.
Managing Payables
You want to get cash inflows as fast as possible, but at the same time you want have cash outflows happen as late as possible. We don’t mean paying bills late. It is important to be timely and ethical with your payables to maintain good credit with other businesses. We understand that this is counter to the advice we just gave for managing receivables, but this is the way businesses are run, and this is especially important for small businesses.
Newer businesses will be purchasing goods and services on credit from larger more established companies that are better financially suited to receiving payments at a later date. Often these larger businesses will provide up to 30 days for the payment of goods or services. If your small business is expected to pay for something within 30 days, then pay around the 28th day. You’ll find better uses for that cash in those 28 days, and you will still be paying the invoice in a timely and ethical manner.
Accurate Cashflow Forecasting
Nobody can see into the future, but with quality and accurate forecasting we can come close. Good forecasting is a valuable tool for a business to plan and make well informed business decisions. This can help with budgeting, as well as anticipating changing market conditions. But forecasting can be very difficult at times due to the dynamic and ever-changing nature of business. There are forecasting software tools available that can make forecasting less difficult. You can speak to a qualified bookkeeper for advice on which forecasting tools would be best for your needs.
Keep Costs Under Control
One of the number one causes of poor cash flow in small businesses is excess costs. This means that a lot of businesses spend too much. This can take the form of too much capacity by over expanding too quickly or purchasing excess inventory. It can be easy for a new business owner to spend too much.
We find that many business owners have a lot of energy and enthusiasm for their business, so they easily get carried away with spending on their business. Fortunately, this is something that can be easily avoided with good bookkeeping services. Being able to visually analyse the financial status of a company in real time can go a long way in making sure that a business responsibly spends its hard-earned cash.
Quality Bookkeeping to Help with Cashflow Management
High quality bookkeeping services can greatly aid in small business cash flow management. This allows the business owner to focus on running the business and on the businesses core strengths, instead of spending a lot of time managing the books.
Go Figured Bookkeeping provides the kind of bookkeeping service Brisbane business owners depend on. You can call us on 07 3608 4206, e-mail [email protected], or get in touch online to enquire about our services and about how we can help your business with tracking and managing cashflow.