Cash flow management entails keeping track of how much money comes in and goes out of your business account. Your business is in a favorable position if there is a considerable amount of money moving in instead of moving out. If it is the other way around, your business is at the risk of being in debt. In this case, you need to look for alternative ways to cover these losses.
Understanding how to manage your business’s cash flow is vital to ensure that you are bringing in the profit needed to expand your operations and grow. It will also allow you to tell areas where you can make tweaks to make a handsome profit.
With a healthy cash flow, you can sustain your business operations, pay your bills on time, and remain debt-free for the foreseeable future. Without proper cash flow management, your business will only be a few steps away from financial ruin. Today, we will share what good cash flow management is all about and the steps you can take to ensure you always remain ‘in the black.’
Regularly monitor your cash flow
It is vital to track all your expenses and monitor the cash coming in and moving out regularly. You have to be diligent about checking your cash flow, whether quarterly, monthly, or weekly. It would also be wise always to maintain a schedule of any upcoming payment to know the amount of cash your business outputs regularly.
Doing such a thing will enable you to identify any errors or missteps early and correct them before everything gets worse.
Continue professional education
Earning an accounting degree has numerous benefits. But the most relevant in this case is that it will enable you to better understand your business’s cash flow. Furthermore, an accounting degree will teach you the ins and outs of how tax filing for the self-employed works, as well as business law. This is necessary if you want to avoid cash flow problems and avoid getting into trouble with the IRS.
Fortunately, the internet makes upskilling very easy. You can enroll in a bachelor of accounting online and learn the basics of the field without having to visit a campus. The additional know-how will help you keep track of your business accounts and identify and fix payment and revenue cycles to maintain proper cash flow.
Try to cut costs wherever you can
Try focusing on your business’s recurring expenses and search for ways to lower your costs if you want to increase your cash flow. Ask yourself, can you cut down on your utility bills, payroll, or rent? Are you spending more than you probably should on services or subscriptions you no longer require? Are your leases or outstanding loans renegotiable?
If you can figure out how to cut costs on these things, your business will slowly move into a favorable cash flow position. Unnecessarily paying for something that does not add value to your business or its returns is like shooting yourself in the foot.
Apply for a line of credit
A line of credit will allow your business to stay protected and away from numerous cash flow issues. You can apply for a line of credit against a percentage of your existing inventory or accounts receivable, considering the fact you put them up as collateral.
Also, search for credit cards that allow you to rack up points which you can then later use for travel purposes or business purchases. In addition to providing a way out during dire financial times, you’ll be able to categorize your purchases while using business credit cards, which allows for better expense tracking.
Use mobile payment solution
It is of the utmost importance that you provide your customers with flexible and easy payment options. And one of these payment options is providing your customers the facility to pay for products and services via their mobile devices.
For instance, if you sell services or products at a customer’s home or office, ask them to pay on the spot through mobile payment apps or debit or credit card. Doing so will let you stay on top of your finances and track all sources of income quickly.
Hire a financial or managerial accountant
When talking about financial accounting vs managerial accounting, both deal with the effective management of your business finances. However, a financial accountant strictly collects financial data and reports a business’s performance and financial health. On the other hand, a managerial accountant evaluates its financial needs and works towards its long-term profitability.
That said, your business needs both individuals to ensure you are always in the black and remain profitable for a long time. Furthermore, if you don’t have the cash to pay both individuals’ salaries, consider hiring only a managerial accountant. S/he can do a financial accountant’s job quite effectively.
Rent equipment instead of purchasing it
By renting or leasing equipment such as computers, cars, or other business-related hardware instead of purchasing them, you can access the latest tech features without tying up any cash. You can also hand in any equipment at any point to upgrade it for the best experience possible. For instance, if your business deals with manufacturing goods, you need top-notch manufacturing equipment. That said, such equipment will cost an arm and a leg. However, renting might be the only option to avoid considerable financial expenses and putting a dent in your cash flow.
It is doubtful that all the strategies mentioned above will work for every organization out there. So, you’ll have to do some that make the most sense for your business model. And don’t worry when you combine multiple ways. In the end, it is all about doing whatever it takes to get your business in the black if you want it to survive in times of financial uncertainty.