Many people don’t understand what cash flow entails. Often, they’ll use it interchangeably with the term profits. However, that isn’t accurate.
Cash flow refers to the cash reserves a business has on hand at any given time. Organizations highly value liquidity andif your business doesn’t have enough cash on hand, you won’t be able to purchase inventory. Likewise, you would face difficulties trying to upgrade your existing equipment or pay your staff.
Hence, organizations are always concerned about their cash flow. Generally, businesses want to ensure they’ve got a positive net cash flow. That means that more cash is coming in than what the business spends.
However, while understanding the importance of a healthy cash flow is straightforward, managing your company’s cash flow isn’t as simple as it sounds. According to the Australian Bureau of Statistics, nearly half of all small to medium-sized businesses cease operations within the first three years of business. Statistics show that 40 percent of these businesses cite poor cash flow as the primary factor behind the failure.
Therefore, if you want your business to avoid a similar fate, you’ll need to ensure you avoid cash flow problems. We’ve prepared this blog to help you keep your company’s cash flowing.
Ways to Keep Your Company’s Cash Flowing
Here are some ways to keep your company’s cash flow positive. They include:
Maintain Updated Cash Flow Forecasts
You can use your previous sales and expenses to create a cash flow forecast. You can accurately predict some of the fixed costs like rent, equipment, etc. On the other hand, you will be able to guess wages, taxes, and expenses more closely. Crafting a forecast is an excellent idea because it enables you to identify periods where your business might need a cash injection. Then, you can appropriately plan and arrange additional capital needed to keep your business afloat.
Some businesses often postpone creating and sending invoices. However, that’s not a good idea. Doing so harms your Days Sales Outstanding. That means it’ll take you longer to collect money from your debtors. In addition, if you’re still sending out hard copies for invoices, you’re putting yourself in a poor position. Hardcopies can take time to deliver because they’re reliant on the post or a courier. If you are using paper invoices it’s well past time to upgrade your invoicing by introducing electronic measures.
Know Your Expenses
Many business owners often fall into the trap of thinking lower prices attract more customers. While that might be true, you’ll want to ensure you’re maximising your revenue per sale. Therefore, you’ll want to know your expenses. Calculate whether offering discounts and coupons increases your business’s net profitability. If it doesn’t, there’s no point providing customers with offers and discounts.
Define Your Payment Terms
Businesses often operate on credit. If you’re buying items from a supplier, you might not immediately pay them. Instead, they’ll give you a 30-days credit term. If you fail to meet the credit term, they’ll be unwilling to lend you again. That’s the same policy that you should apply if you’re offering credit to your customers. Set clear-cut guidelines that indicate the rewards for early repayment. In addition, also include in writing the consequences your client will have to face for not paying you back timely.
Bundle Products and Services
In today’s business landscape, if you aren’t upselling or cross-selling, you’ve got problems. Your goal should be to extract the maximum amount of money you can from a customer. Let’s assume you run an electronics retail shop. You have a customer come in looking to purchase a TV. Instead of selling them the TV alone, consider offering them a bundled deal. You might want to throw in a Blu-ray player or a video game console to sweeten the pie and convince the customer into buying from you.
Get Full Accountancy Services from the Best Accountant in Melbourne
If you’re looking to take your business to the next level, consider seeking full accounting services. A business accountant can greatly benefit your firm, helping reduce expenses and increase profits. In addition, accountants can help you manage your cash flow, ensuring your net cash flow remains positive.
If you’re seeking bookkeeping services for small business from an excellent accountant near you, we’ve got your back. Visit Newmarket Accounts for more information. Alternatively, get in touch with us to learn more.