The term cash flow refers to the net amount of cash and cash equivalents being transferred in and out of a company (Investopedia).
In an article from the same website, they described cash flow as ‘the lifeblood of a business’, because if a company can not generate enough money to make profit and cover their expenses, then they risk facing serious challenges.
Many surveys have recently shown that the biggest downfall for small businesses is financial mismanagement. The good news is that this is something which can totally be fixed.
From our experience, knowledge and research, here are some ways that small businesses can improve their cash flow.
- Use relevant time frames
Many bills are pitched monthly, because it helps customers to feel like they can afford things for small amounts, instead of having to pay a large sum up front. For a business, you should calculate what the annual cost would be, and then refer to that. This can help business owners to make informed and appropriate decisions.
- Calculate the yearly value of clients
This helps a business to know what they can expect in return from clients. It also will help to identify if prospective customers need to be sought after in order to break even and ensure profitability.
- Tighten terms of credit
Late payments can negatively impact businesses. It is wise to request payments from customers on short notice. Companies should minimise interactions with debtors where possible to create stability around their income. In order to achieve this, you should look to implement the most convenient methods of payment. This will limit resistance to payments.
- Build a cash reserve
Having some spare savings can allow you to step out and try some new things in your business, with confidence. If something were to go wrong, or an unexpected expense came up, you know that you’re covered.
These are just a few methods that businesses can employ in order to improve the management of their cash flow. Companies who can keep track of their cash flow, can optimise it. Which in turn can lead to growth, and increased sales.
Part of our job at Your Accounting Sanctuary is to help businesses manage their cash flow, amongst other things. If you would like to consider ways in which we could help you, and bring ease to the finances of your business, send us an email to set up a meeting.
https://www.investopedia.com/terms/c/cashflow.asp
https://www.investopedia.com/articles/investing/041515/why-cash-management-key-business-success.asp
https://www.forbes.com/sites/forbesfinancecouncil/2021/02/02/four-ways-to-better-manage-your-small-business-cash-flow/?sh=ac09b0052de8
https://www.smallbusiness.wa.gov.au/blog/managing-your-cash-flow