Cash is the lifeblood of your small business. When you’ve got plenty of cash on hand to deal with everyday expenditures and staff, you’re much more capable of addressing slow sales cycles. Even if a firm is making a profit on paper, it needs to pay attention to cash flow to avoid bankruptcy. For this reason, cash management is essential if you’re running a small business.
To improve and help manage your finances, consider these tips and methods.
Review Your Current Cash Flow
Paying attention to cash flow is the very first step toward improving it. Using cash flow analysis, you monitor how your business handles finances to increase your available resources. For example, review your inflows and expenditures, where you should anticipate the cash to enter on income, your financial outflows, or where you spend for bills, payroll, and more.
It is crucial to fully recognize your current environment regarding money and your future goals. If you are focused on cash flow trends and can assess data, you can be in a position to come up with solutions for all possible problems in the future.
If you need help, you can use accounting software programs such as MoolahMore. The program records the outcomes of your transactions as they go. MoolahMore can also estimate your future budget based on this information.
Speed Up Customer Payments
Obtaining project payments sooner can prevent substantial cash flow problems. For example, investing more time on down payments, asking buyers to make timely payments or supplying incentives due to customers’ tardiness can help speed up the occasion between your business completing a sale and cashing out. This benefits your cash flow and can also prevent issues with clients who are delinquent or skip payments altogether.
Invoicing software can create and send invoices on your behalf and remind you of late payments. This saves you time and increases incoming costs. Moreover, accepting credit card payments would speed up the checkout process.
Transferring an unpaid customer invoice to a finance company is called factoring. The factor pays you around 80% upfront and collects the remainder directly from the customer. When the fee is received, you receive the balance.
Lenders can provide the funds faster, and you don’t need to worry about your client misplacing a payment. Factoring fees can be as little as 5% of the total invoice amount. This implies that this strategy is a bad fit for stores selling low-margin items. It would be best to have sufficient profit reserves to have adequate earnings after the factoring fee clears.
Avoid Overextending On Projects
Landing new sales and engaging influential clients is exciting, but it is only half the hard work. You must also ensure that your client keeps their side of the agreement.
If extending credit is part of an agreement, consider how your finances will be affected if the client doesn’t pay. If you’re not going to bear the impact of the loss, then that’s a sign of overextension. Either demand more money upfront or consider exiting the contract.
Cut and Delay Expenses
If you do not have sufficient cash to sustain your current payroll, you will want to consider authorizing reasonable spending cutbacks. Actions such as stopping non-essential trips, delaying office renovations and postponing buying equipment could be beneficial.
You cannot accomplish all the steps overnight, which means you need to make sure you plan with where your cash comes from and where it goes. That way, you have more time and money to cut costs, rather than being forced to face the problem where you have almost no money after a crisis has already hit.
Keep Cash in the Bank
The COVID-19 pandemic has brought to light the need for cash reserves–entrepreneurs now appear to know the value of having an extra stock of capital in budget. Any disaster, from Coronavirus to a hurricane to a family illness, reinforces the importance of emergency savings to provide you peace of mind. A great target is to have at least six months of solid company expenses saved up to get time to recoup or ask for emergency aid.
Being great at something and being a professional in your field may not mean you understand how to manage your finances. Contact financial specialists or seek accounting and bookkeeping advice, and utilize automated, intelligent accounting software like MoolahMore.
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