How to ease your business cash flow
You may be asking, what’s so important about cash flow? That’s a good question, with a lot of answers. Having healthy cash flow in a business is probably one of the smartest decisions you can make, especially if you working with a small to medium sized business. You may be really profitable on paper, but having cash flow is the proof that your company is actually succeeding. You’ll need cash flow to be able to invest quickly and borrow money at lower interest rates, two things that are sure to keep you neck-to-neck with the competition. So, how are you going to ease your business cash flow?
The first thing you need to do to ease your business cash flow is understand what it is exactly. A lot of new businesses think that they can take a quick look at their profits and earnings and know the exact state of their cash flow. Not quite. A few more numbers go into the Profit and Earning statement. You have to consider that the P&E accounts for transactions done on account, transactions that will take place but haven’t yet (like paying your employees), depreciation, etc. Cash flow only records the actual movement of cash in and out of your business. So, a cash flow statement won’t record when you purchase new office furniture on account, but it will record you’re expending the cash to pay off that furniture.
Now that you understand cash flow, here are our tips to easing your cash flow so that you can use that hard-earned profit to expand your business or make healthy payouts:
- Collect your receivables! This seems obvious, but it can go overlooked quite easily. When you are looking at your P&E statement, you can see where you performed a service or delivered a good, and what you expect your client to pay you for that good. That’s great on paper, but you haven’t actually made any money until that client gives you the cash. So the first way to ease your business cash flow is to actually collect what is owed to you. There are several ways to give your clients incentives to pay you quickly: have a “bonus” or discount option for quick payments, make it easy for them to get the payment to you either by having a designated mailing location and working through one bank, or using an online payment method.
- Evaluate the credit worthiness of your customers. When your business was starting up, the bank certainly did a credit check on you to see how likely you were to pay back the money they loaned you on time. You get to do the same thing for your customers. Before taking on a new account, run their credit and do background checks to make sure that they are going to be a responsible party. Not doing so is the same as irresponsible lending and it could give you a lot of problems in the future.
- Expand your business. This can be a double edged sword, so be careful. Any business expansion is going to require cash, but it is also going to increase sales and bring in more money. Make sure that you are doing your research and expanding in a prudential manner so that you aren’t investing more money in the expansion that you are going to get out of it. Expanding your business means that you should be gaining more customers or more lucrative customers, who eventually bring in that cash!
Ultimately, there are a lot of options to ease your business cash flow. We’ve detailed the top three in hopes that you can get a sturdy foundation started and improve from there. Remember that steady cash flow is the life of your business, and without it your company is worth no more than the paper it is written on.
At IQ Accountants, we understand dealing with all those numbers and all of that paperwork can get a bit daunting, that’s where we come in. We’re great with numbers and keeping things in order for businesses like yours. It’s on us to make certain that everything runs smoothly and things are looking good. We love what we do and we love helping people out, so call us today on 5576 0011 and let us know how we can help you!