Whether your business is small or mid-sized, completing decades of establishment or a few months – efficient cash flow management is critical because “cash is king” and a key to a successful future.
With cash flow management, companies exercise full control of input and outflow of funds which helps them make sure that the outflow of cash stays lesser, profits keep increasing, excess funds are available for further investment, and business is not going to run out of money shortly, and the return on capital is always maximizing.
7 Best Tips for a Better Cash Flow Management
If you are only looking for nonpayers, heavy invoices, and loan repayment deadlines for better cash flow accounting, you lack a strategy. Many companies, particularly SMEs, make mistakes of not planning, misallocating resources, or over-forecasting their sales, consequently affecting their cash flow. But, we have enlisted the most practical cash flow tips that will let you save big and enjoy positive cash flow.
1. Generate Cash Flow Reports
How do you plan on keeping a close check on each transaction without reports?
Well-maintained cash flow report, generated with accounting or Cash Flow Management software and tools (XERO), is necessary for calculating the incoming and outgoing balance. It is advised to use cloud-based storage spreadsheets to supervise and identify the highs and lows in the company’s money flow anytime.
Always assign such monitoring tasks to trustworthy team members who must be aware of all financial aspects as managing cash flow gets easier.
2. Smart Inventory Management
How to manage cash flow effectively?
Always keep your inventory updated for a better understanding of ongoing supply-and-demand levels. Also, keep it freshly loaded with your best-selling products to cope with the growing orders without delay. The clever way is to do “ABC analysis”, as it will highlight the products that have been the client’s favourite and the products that are not appreciated.
You can either dispose of your no longer needed stock or sell it at great discounts for quick cash, leaving the only products that your customers are demanding. Prioritised stocking will help you get rid of excess stock, as well, because apparently, they won’t be generating revenue any time soon.
3. Online Payment Methods
Never compromise on the payment method, or else you will face major setbacks. There are phone payment methods applications, but online payment methods will be a good choice as it tracks every activity and keeps a record. With net banking, Google pay, Paypal, etc., you will get your payment faster.
4. Fixed and Variable Expenses Across the Financial Year
It is essential to categorize your fixed and variable expenses. For instance, you will be paying rent, telecommunications costs, and employees’ salaries throughout the year – fixed variables. On the contrary, you will be receiving shipping fees depending on the location and paying for manufacturing material considering the demand or products – variable expenses. Cut their cost down from your total earnings and move forwards with another investment with a clear figure in your mind.
Additionally, a common area maintenance (CAM) fee for a brick-and-mortar shop needs your attention. It includes other outlays such as lighting, janitorial services, cleaning, etc. Don’t forget to add them up to your operating expenses!
5. Lease for Small Businesses
Buying is not always a secure option. Leasing the equipment or inventory will benefit you in the longer run. It might get tricky sometimes but it will save you from getting troubled with debt because you won’t be paying massive amounts; instead, making small payments over a defined period. And yes, it does write off your taxes.
Still, asking how to improve cash flow management? We have just told you the best way to manage cash flow!
6. Keep A Cash Reserve
With no backup cash, you will always be scared of making a new investment or taking a future decision because WHAT IF you fail to maximize capital or sales don’t give you the expected amount?! Petrifying!
That is why you must have a hefty cash reserve of a fixed amount to cover unanticipated or emergency expenses at any given time because companies run on money. If you face a sudden shortfall of money, your business will crumble.
7. Maintain Your Invoicing Workflow
One of the most important aspects of maintaining a positive cash flow is utilizing the invoice-on-demand model for the company’s benefit. You must practice and teach your employees to send invoices immediately after delivering the products and collaborate watchfully with the buyers to get your payment as early as possible. SMEs don’t go well with the monthly billing cycle. Your invoice should be:
- Clear and understandable
- Fully Detailed
- Easy to read
Every profitable business must have a secure method for sending an invoice, such as an email automation system. Choose the method of payment that not only pays you faster but saves you time. It will play a significant role in cash flow management during a crisis.
Profits Plus’s Expert Accountants at Your Service
Do you want to predict your company’s future financial position? Or looking for professional assistance in financial management planning? Profits Plus has every solution to your business and accounting problems!
Our cash flow management accounting services are solely focused on helping businesses generate a greater amount of cash for a secure future. We use the best cash flow management tools & techniques to minimise the chances of negative consequences.