Indeed, any small business must manage its cash flow carefully, if it is to have enough money in the bank to pay the bills and its salary liabilities, as well as to pursue growth opportunities.
There are many reasons why you might end up having a successful business, but 82 per cent of small businesses that fail say their main reason was poor cash management.
Look Ahead
Managing cash is crucial for sustaining business because, without adequate cash in the books, business can’t pay their bills or invest in expansion strategies. Automate your budgeting, accounting and financial reporting processes to improve accuracy and save time through next-generation processes that capture and record data, auto-calculate and reconcile, and provide real-time visibility into spending, which helps to build and maintain better cash flow forecasts. A broad cash-flow analysis would consider all minor but consistent recurring expenses and how they might change along with inflation, customer acquisition costs, seasonality or otherwise. It would evaluate days of sales outstanding (DSO) and late payment issues within the business; cash benefits of negotiating better terms from your suppliers in exchange for quicker payments (such as 2 per cent off the price if payments are made in 10 days); lowering the cost of payments to suppliers.
Expense Management
Accurate and up-to-date expense records help small businesses know where they’re spending money and allow them to make informed decisions about cutting costs, raising prices or investing in potential growth opportunities. On average, tracking expenses and managing expenditures year-round helps prevent or address issues with compliance to tax law, and allows small businesses to view the tax process in a less daunting light. With financial technology, small business finance professionals and owners can and should leverage data entry that can be digitised, black-box budget control automation, and detailed reporting that in turn streamlines and simplifies expense management. Late payments typically involve an extra cost or penalty that erodes cash flow. Payments can be stretched out to take advantage of discounts and rebates that can improve long-term affordability. Stagger vendor payments to keep cash flowing while taking advantage of any rebates or discounts that could help improve long-term affordability. Fixed costs such as insurance payments or premiums can be negotiated to help mitigate short-term cash-flow implications.
Expense Reduction
Healthy cashflow is the secret dream goal of every small business owner – and why shouldn’t it be? When you report positive cashflow you can pay your employees and taxes and debt without borrowing or begging. For businesses that aren’t willing to, or can’t, rely on proven marketing tactics to increase sales, cutting costs is probably the best way to increase cash flow. One easy way to do this is to negotiate new payment terms with vendors. If they currently require you to pay net 30 days, for example, see if you can negotiate net 60 or 90 days, putting more cash in your coffers more quickly. If you have a lot of money in inventory, cutting levels could also reduce storage costs while reducing wasteful overpurchasing. And, of course, reducing overhead as much as possible by automating could also be beneficial.
Automated Payments
Good cash flow management helps small business owners see the health of their business more clearly, revealing which processes, if any, might need changing or improving by giving a clearer picture of their financial position as a whole, and ultimately helping them avoid overspending. Financial management is usually a difficult task for any company, managing someone else’s money without apps for example by setting automatic payments is hard. App recieve either the payment instantly, decrease risk of late payments, or manage our customers in an efficient manner. Whether it’s an ACH payment processing platform or one dedicated to credit card transactions, the thing you want is one that provides high quality at a reasonable cost – that way you’ll spend less on processing fees but still get the kind of features you’ll need to run your business.
Inventory Management
Account for inventory as current assets on your balance sheet – company cash goes down. And the sooner you try to reduce inventories, because the carrying costs of inventory are expenses, the better – by negotiating more favourable terms with suppliers, by reducing receivables’ carryover, and by streamlining the back office to reduce expenses through greater efficiency. Reduce business expenses without reducing basic services. Another lever to drive cash into your business is to regularly check budgets and identify ways to cut costs without affecting quality or productivity. Make it a habit to be a data-driven. Boosting cash inflows is the other obvious way to boost business cash flows, and it involves fostering earlier payments from customers by giving them early-paying incentives, sending invoices promptly, and using accounting software to help automate the AP process.
