‘Cash is King’ is an expression we hear all too often and for small business owners it is a reality. Cash flow is the life blood of a small business; having a strong cash flow gives a business owner control over their business. A poor cash flow can result in significant stress and ultimately lead to a failing business.
Here are 6 rules for helping you manage your cash flow:
1. Create a cash flow forecast
It is imperative that you create a cash flow forecast that details your expected cash inflows against your cash outflows. Having a cash flow forecast will help avoid any surprises and provide you with an idea of your likely cash position in the future. The actual cash flows should then be measured against your forecasts to evaluate the performance of your business. If creating a cashflow forecast seems like a daunting task, an external accountant will be able to provide valuable advice and recommendations.
2. Keep your accounting records up to date
If your accounting records are not up to date, you will never know the state of your business and therefore never have an accurate cash flow. An external accountant can assist you with your accounting needs, allowing you more time to grow your business or spend with your family.
3. Use quality accounting software
Using a quality accounting software allows you to have up to date accounting records and accurate cash flows. It will also help you track and report on key business indicators such as aging accounts receivables, operating margins and inventory turnover. Understanding these business indicators will significantly help you manage your cash flow. An external accountant will be able to assist in recommending an appropriate accounting software for your business.
4. Be fair but firm with customers
Invoicing is only the beginning. Strong revenue does not automatically equate to strong cash flow. You need to have a clear strategy (reminder letters, phone calls, payment plans) for invoices that fall outside of your trading terms. It is also essential that you make it as simple as possible for customers to pay. Ensure you have a variety of ways that a customer can make payment e.g. cheque, EFT and credit card.
5. Keep personal finances separate
A lot of small business owners believe that their business and personal finances are one in the same. Nothing could be further from the truth. Personal finances (income and expenditure) need to be kept separate from your business finances. This will allow you to truly understand the performance of your business and the cash flow it is generating.
6. Create a Cash Surplus
It is much easier to be nimble in business if you can maintain a cash surplus. These additional funds allows you a cushion should unexpected costs arise or there is a temporary downturn in business. A cash surplus also allows you to make the most of any opportunities that may arise e.g. increasing staff, expanding inventory, equipment purchases.
If you have excess cash it is important that you keep this money working by having it in an interest earning account or offsetting it against any business loan you may have.
It is essential that every business owner has the tools in place to measure, manage, and improve their cashflow. The experienced and proactive team at Accru can provide all the assistance and support you need.
With offices in every capital city and experience spanning over decades; Accru is your best option to make sure your business’ cash flow is thriving. From current reporting to future forecasting, our Business Advisory Specialists can assist with all your business’ needs. Contact your local office today!