We’ll state the obvious – that keeping a steady cash flow is a bigger challenge than most business owners realise. Fortunately, there are sound solutions and cash flow rules to help you. All you need is a great accountant, a few processes in place, and three tools to make everything that much easier.
How your Accountant can help you with cash flow
The role of your accountant in this aspect is paramount. Your accountant is your trusted advisor and can see ways to improve your cash flow – which you’d most likely miss.
When doing cash flow forecasts, your accountant will need to make a critical assessment of how long it will take you to collect the money from the forecast sales, as well as other likely risks that could affect the collectability.
- Expenses Analysis
Your accountant can analyse your operating expenses and pinpoint potential areas to reduce operating costs. This could mean re-negotiating with suppliers, changing service providers, or even cancelling unnecessary services.
- Pricing Analysis
Cost-Volume-Profit analysis can Your accountant can also review your pricing system across all products and services to determine if your prices are in line with market expectations. Maybe a price rise is long overdue, and lifting your prices will greatly improve your cash flow.
It’s very important to realise that cash flow problems do no not ‘just happen’. You need to make the commitment to do everything it takes to avoid running out of cash – by proper planning. Many businesses fail because the owner did not see a cash flow problem in time to do something about it. Your accountant can give you valuable and realistic financial projections to include in your business plan – giving you the information you need to keep your cash flow steady.
- Restructure financing
Your accountant can be of great value here. Have them look at finance restructuring options to help you save interest on your business loans, as there could be cheaper options available – such as refinancing existing debt.
Simple processes to help you improve your cash flow
These simple processes, if followed, should without a doubt make a difference to your bottom line.
- Request progress payments
On larger projects or orders, requesting milestone payments will boost your cash flow and reduce your risk level.
- Incentivise early payment
More often than not, delayed payment isn’t deliberate. You could offer a 2% discount for early payers, thereby incentivising them to settle sooner.
- Invoice consistently
Set aside some each week to create and send your invoices. Consistently sending invoices will groom your clients to expect your invoices and will allow them to start processing your paperwork according to their schedules.
- Keep your books accurate and up to date
Make sure your accounting records are updated regularly, and set time aside each week to stay on top of things. Use quality accounting software, so you can access your financial information at all times.
- Build a safety net
Having a cash reserve provides a safety net when you need to manage unexpected events, and puts you in a position of strength. Start by paying yourself a little less for a short period, until you have reached the figure that you and your accountant have calculated to be your safety net – and don’t spend it!
- If in doubt, ask!
If you see yourself heading for trouble, contact your accountant. With years of experience in solving cash flow problems for many other businesses like yours, your accountant may come up with creative strategies to help you deal with the situation immediately thereby mitigating any further complications.
Tools that can help you improve cash flow management
- Online accounting software
Xero does a beautiful job of showing you what’s coming in and what’s going out of your business. It allows you to log in online any time and see up-to-date business financials – from anywhere. Tracking your income and expenses is critical to good cash flow management.
- Automated credit control
Taking control of your cash flow means that you need a simple, set-and-forget credit control for your businesses. DebtorDaddy is a great add-on to your accounting software which helps you to get invoices paid faster, automatically; it keeps debtors on your radar, with minimal effort; and it manages debtors for you but without the time or cost of manual follow-ups.
- Streamline your bills and expenses
We all know how time consuming those regular piles of invoices can be – having to manually enter them seems like an enormous waste of time. With Receipt Bank, you just sort them in to order, scan them and upload them, a short while later they are available to check and transfer across to your online accounting system, like Xero.
- Encourage payment by credit card
Accepting credit card and debit card payments will allow you to receive next-day value for your sales and services, providing a boost to your cash flow. Stripe makes it easy to accept credit card payments for online invoices sent from Xero. Your clients will see a ‘Pay Now’ button when viewing their invoices in Xero, and the payments are automatically posted to the invoice.
- Inventory management
How you handle inventory can have a major effect on your cash flow. Tying money up in inventory can severely damage your cash flow. Unleashed provides online inventory software for Xero, allowing accurate costs, margins and stock control. Integration with Xero is seamless and easy. This is a great tool with the ability to really drill down into what’s working for your business.
Managing your cash flow should be a central part of your business strategy, and thoroughly understanding the numbers that drive your business is the key to success.
Please contact our online accountants to see how we can add value to your business! All of the tools we’ve mentioned above, to help you manage your cash flow, are available to Square Mile Accounting clients. Take a look at our business packages to see what works for you!