As a small business owner, it is your responsibility to ensure that you have enough cash coming in to cover all of your expenses and allow your business to continue to function smoothly. That is why it is essential to learn how to manage your cash flow better so that your business can experience more security. There are various accounting strategies you can implement that will help you better manage your cash flow.
Strategy #1: Start Collecting Data
If you want to improve your cash flow, the first thing you need to do is start collecting data on how your business is operating. The more data you regularly collect, the more information you have to work with to predict your cash flow.
You can set up accounting systems to automatically collect this data for you, making the burden less on you. You will want to collect information on the customer's payment history, vendor payment policies and invoices, expenses, revenue, and profit. The longer you collect this information, the more accurate your forecasting will be.
Strategy #2: Create Cash Flow Forecasts
Second, after you start to collect financial data about your business, you can work with your accountant to create cash flow forecasts. Cash flow forecasts will use past financial data to predict how much cash will be flowing in and out of your business so that you can make smart financial decisions. These predictions may be based on the next week, month, or quarter, depending on your needs and the data you collect.
Cash flow forecasts will allow you to anticipate when your cash flow will dip and when it will rise, allowing you to make smart decisions that will protect your business's financial interests.
Strategy #3: Change How You Manage Receivables
Third, you will want to change how you manage receivables, which is another task your accountant can help you implement. You are going to want to invoice immediately after you do work. You will want to offer rewards for rapid payments; rewards can help you get your cash quicker than penalties often can. You are going to want to provide your clients with easy electronic payment options so that you can collect payments quicker. When taking on new customers, get a credit check or require partial payment upfront. Be on top of following up on late invoices with an automated reminder system.
These changes can help you bring in the cash owed to you quicker, allowing for a more predictable cash flow.
If you are running a business, you will want to ensure that you have adequate cash flow to take care of your business. By working with a public accountant, you can develop strategies that will help you increase and control your cash flow.