Many businesses who seem to be doing well in terms of sales struggle to meet their financial obligations. This has to do with poor cash flow management. Indeed, the Small Business Administration (SBA) says most new businesses fail within the first 10 years due to poor cash flow. Without good cash flow, your business faces bleak times ahead and this is a good reason to consider accounting outsourcing. Simply cash flow is king in any business.
Cash Flow Management in Brief
For most businesses, the main objective is to sell and attract more customers and a big chunk of business revenues goes to push sales. However, The flow of cash into the business is a more important aspect of the business but goes unmonitored.
Management and analysis of your company’s cash flow enable you to meet financial obligations and plan adequately. It also involves optimizing the net amount of cash coming into your business coffers minus the expenses. This is a crucial measure of your businesses’ financial health.
Extended cash shortages can hamper business operations and lead to business failure. While most business owners feel they can monitor all their financial processes, it is advisable to outsource cash flow management to the experts to avoid future problems including bankruptcy.
Tips To Improve Cash Flow in Your Business
Now that you appreciate the importance of cash flow in your business, why not learn a few ways to improve cash flow in your business. Take a look:
1. Regular Cash Flow Analysis
They say you can’t manage what you don’t know. For this reason, you need to perform a cash flow analysis on a regular basis. The process also includes cash flow forecasting to help you avert recurring future cash flow problems. It is important to use a professional to carry out this analysis.
2. Stay Punctual When Invoicing
To ensure your customers pay on time and avert a cash flow problem, it is important to submit your invoices on time. Many clients will not pay until you submit your invoice and any delays will give them excuses to delay payments. If you want to improve cash flow in your businesses, use the latest invoicing tools to stay up to date with pending payments.
3. Ask For a Down Payment For Products And Services
Many business owners are quick to deliver products or offer services without asking for a down payment. This strain, their cash flow and can lead to spiralling financial problems for the business. If you want to avoid falling into debt, make sure you include a down payment in all your contracts. Many customers have no problem paying a down payment if you ask.
4. Include Precise Payment Terms in the Contract
To stem a cash flow drain on your business, make sure you include the terms of payment in the agreement. Don’t extend the payment date, but instead ask payment on completion of a contract or delivery of products.
5. Carry Out Background Checks on Clients
If you have a new customer making a large order on credit, make sure you carry out a background check on their credit worthiness. The last thing you want is to sell goods or services to companies in the red.
Other ways to improve cash flow in your business include offering client incentives, minimize personal draws from your business, a factor of your receivables, set a collection process in place and utilize it, Improve Your Inventory and add good that move fast and use electronic payments to access the cash faster.
How to Deal With Cash Flow Emergencies
If your business faces cash flow shortages and you can’t pay bills or meet other obligations, it is important to have a fallback strategy. Your plan should help you overcome the challenge and not put you in a deeper debt hole.
Some of the strategies to consider include when dealing with cash flow emergencies include:
Carry out a cash flow assessment and prioritize payments
Cut any expenses you can.
Pay off smaller debts to increase cash flow.
Leverage your good relationships with suppliers and clients to continue operating.
Chase late payments from your customers before going for a bank overdraft
Free up assets to inject some cash into the business
Build an emergency fund after you are through your emergency
There is no doubt that cash flow management is a critical aspect of any business. By staying on top of your cash flow processes, you can easily avoid problems such as debts and bankruptcy. Accounting outsourcing is also a great idea as it brings professionalism to your financial processes and boosts cash flow in your business.
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