It’s important to note that a considerable proportion of cash flow issues arise because owners haven’t spent sufficient time approximating the arrival of different revenue streams and balanced that against the need to pay some expenses.
If you’re struggling with cash flow management, check out these New Year tips.
Develop a Budget
As a business owner, you must sit down to estimate anticipated cash outflows and inflows thoughtfully. You should consider factors such as the sales cycle, discounts, and terms offered to customers, and other factors that may influence the timing of incoming cash.
It’s also necessary to approximate expenditures and other cash outlays. This involves the timing of the purchase of raw materials, equipment, and supplies. Additionally, it includes the schedule for salary and tax payment.
Tighten Credit Terms
You’re likely to experience cash flow challenges when you extend credit to slow-paying clients. Therefore, consider negotiating new terms with current clients who’ve been slow to pay and set more stringent terms for new customers.
It’s also important you examine credit reports before you extend credit. If appropriate, request partial payment or deposits. This way, you’ll have cash on hand to purchase inventory or materials.
Collaborate with Your Vendors
You’ll discover that vendors want payment as soon as possible the same way you want clients to pay you. However, paying your vendors early could affect your cash flow, so you should avoid this if possible.
Instead, try to delay payment as long as possible while maintaining consistency with the sales terms. While slowing cash outflow is important, it’s equally vital to uphold a good credit rating and cordial relations with crucial vendors.
Beware that the affected vendor might contact you due to slowed payment. In those instances, be vigilant when it comes to future payments. In the event that you must delay payment, make sure you contact the vendor as soon as you can with an explanation along with a plan on how to pay your debt.
A major aspect of managing cash flow involves the control of cash inflow and outflow timing. Depending on the industry, extending credit to buyers may be normal.
For instance, you may extend to your clients a 30-day period to finish payment. However, each time this kind of transaction takes place; it puts a strain on your business. While the purchaser won’t need to provide payment for 30 days, your business must continue meeting its financial obligations.
The easiest strategy to pursue payment is immediate billing. If your business generates sales on credit, it’s important you deliver the invoice within 24 hours of the transaction. Moreover, tracking your invoices and sending reminders before the due date is necessary.
Bear in mind that the postponement of invoice delivery might result in late payments because of the processing time needed by the purchaser. For fast and certain delivery of invoices, you should consider using the email.
It’s vital you adopt strategies to accelerate payment in order to ease the pressure generated by credit sales. A common tactic involves offering discounts to purchasers who pay their bill within 10 days.
You’ll discover that purchasers with adequate cash will be willing to forego the payment period in return for a discount.
Foresee Future Needs
It’s very disheartening to search for cash when you are desperate, so avoid surprises. To begin with, maintain accurate and timely accounting records because they’re essential to comprehending your business’s financial status.
Use your previous monthly revenue and cash flow statements together with your balance sheet to calculate accessible cash and project possible results for the subsequent 3-6 months. These statements can inform you of any shortfalls in advance thereby giving you enough time to prepare for them.
Whether you have a growing or struggling business, effective cash flow management is vital to business survival. After all, building and maintaining sufficient cash flow offers flexibility and maximum opportunity to grow your business while giving you a peace of mind.
Dailey Bookkeeping Services is a Xero Certified SILVER Partner and a QuickBooks Online Certified Advisor, so if we can help you with your cash flow needs, just give us a call, we would love to help you! The owner, Jacqueline Dailey is a Certified Public Bookkeeper, an Advanced Certified QuickBooks and QuickBooks Online ProAdvisor, a Sleeter Group Certified QuickBooks Consultant and a Xero Certified Silver Partner. We work remotely so we can work with any company located in the U.S. If we can help you with this process or provide you with custom reporting, please give us a call. If we cannot help you, we will refer you to someone who can! Feel free to visit our website at http://www.