How basic accounting can improve cash flow for your books
As all small business owners know, staying on top of cash flow is key to ensuring ongoing business. Cashflow is not only needed to pay bills and employees, but also to reinvest in the company in order to grow. A consistent cash flow certainly helps ease some of the stress of owning and growing a new business. Here are a few simple tips to help manage your cashflow:
1. Enforce your payment terms
Having a good collection practice and policy is imperative to not only making sure that the money is flowing in, but also to help evaluate if ‘problem payer’ clients some special attention. A few questions to ask, in reviewing your collection activities: how long, on average, does it take to collect on invoices? Are customers reporting issues or disputes as a reason for not paying, and if yes, what is being done to resolve them? Are you in contact enough with your customers to understand when and why there are slow payments occurring? All of these lend to developing and maintaining a good relationship with your customer.
2. Create a good forecast
A good first step, for any business, is to build, not only a good income statement budget, but also a good cashflow forecast. The forecast could be monthly, or even weekly, depending on the volatility or growth of the business. It is important, as a business owner, to not only project when sales will occur and when the cash will come in, but also foresee the associated outgoing costs needed to support these sales, such as inventory purchases and salaries. This exercise could be as simple as an excel spreadsheet showing expected cash in and cash out – to be able to visualize where some cash outflow surges may occur.
3. Consider retainer payments for some clients
In client service based businesses, it can be difficult when relying on cash inflow that may be project by project based. Consider the possibility of converting some steady business clients into monthly, fixed, recurring – or retainer, type payments. This will help you know what to expect each month, and may also ease the clients cash outflow budget.
4. Review your buying practices
Sometimes the cashflow constraints are due to rising prices from purchases. Consider an annual review of the various spend you incur, such as insurance, phone service and internet. For office supplies, avoid buying more than you need unless there are items that you consume on a regular basis; then consider buying in bulk.
Take the time to review ways to improve your cash flow position. Making just a few small changes to how you manage your cash coming in and going out can have a big impact on your ability to maintain and grow your business.
We hope you enjoyed the bookkeeping tips in this article!
LUXA Enterprises offers outsourced accounting services for small businesses in the Tulsa and surrounding areas. If you’re considering a short or long-term approach to outsource accounting, give us a call for more information at 918-928-7288.