Cash flow is considered the lifeblood of every small business and how it is managed can mean the difference between your company’s succeeding or not. Having ample cash on hand will ensure that your suppliers, employees and other vendors are always paid on time. It also allows companies to invest cash back into the business in order to generate additional revenue and improve their bottom line. On the other hand a lack of adequate cash flow can result in increased debt, late payments, high interest charges, and other struggles that will detract from your company’s overall success.
Even small businesses can have enough cash flowing in and out to require a professional and comprehensive system for managing it. It should be a software program that does the formatting, organization, and calculations for you, so your time is simply spent on analyzing and using the information to your advantage.
One option is to invest in an online billing application that has integrated accounting capabilities. It will give you the ability to easily enter all invoices and payables, track your cash flow, monitor inventory, generate necessary reports, and manage your client’s information all from the same website.
If you use an online billing software, make it a priority to run a weekly cash flow statement. There are so many necessary expenses needed to run your business, as well as the money you earn from your hard work. These transactions need to be reviewed regularly to ensure that you have enough coming in to cover what is already slated to go out. This is commonly referred to as cash flow management.
You cannot practice cash flow management, if you do not have an up-to-date cash flow statement. Cash flow refers to the difference between inflows (the actual cash that is coming) and outflows (the cash that is scheduled to come out). The actual income is not accounted for until payment is received. On the same hand, expenses are not calculated until payment is made. Looking at a bank statement will not show what is scheduled to come out and what you are hoping will be coming in. It needs to be a professional and current cash flow statement.
Assessing accurate cash flow projections at least once a week is one of the most important things a small business owner can do to ensure their success. It can raise red flags to potential problems before they grow too big to handle, reduce the reliance on credit, and indicate if a receivable is past due. It is crucial that other factors are also accounted for in your cash flow analysis, including upcoming expenses like rent, inventory, salaries, benefits, taxes, office supplies, and advertising expenses. If you use an web-based online billing to manage your accounting, it can plug in reoccurring expenses for you, so everything is considered.
Cash flow management is not fun, but it doesn’t need to be difficult. It is a fundamental aspect of all businesses and it needs to be watched closely and managed. If you are still struggling, look into an online billing application to make managing your cash flow simple and convenient.
Cash flow management is a fundamental aspect of every business, but it can be daunting to stay on top of it when there are so many other responsibilities that need your attention. That is why we have compiled a list of seven powerful secrets to successful cash flow management. By setting up a system based on the following guidelines, your business will have better control of its cash flow.
Seven Secrets to Successful Cash Flow Management:
1. Negotiating better terms with clients and suppliers
It will be easier to manage your cash flow if you can count on a steady stream of income without unexpected delays. Your clients understand that they need to pay and most are willing to pay earlier, especially if you offer an incentive. Set up the terms at 30 days, but then offer a small 1 or 2% discount for payment within in 15 days. Setting up convenient terms in advance, will ensure that you are not trying to balance your payables while waiting on a receivable.
The same can be done with a supplier. Negotiate longer terms and inquiry if they will offer a discount for early payment. By improving your terms with clients and suppliers, you will have greater flexibility in regards to your cash flow.
2. Use online invoicing to get paid faster
Online invoicing companies have systems in place that will make it easier for you to get paid faster. They have direct billing options, where the invoice is emailed immediately to the client. Their program can even request a read receipt, so you know it has been viewed.
3. Send reminder notices to clients
The online invoicing companies previously mentioned also have reminder notices, to help your receivable move its way to the top of the pile. Sometimes that old adage “squeaking wheel gets the oil” works and reminder notices have proven to be highly effective.
4. Creating a cash reserve for potential growth
Successful cash flow management involves keeping some aside for emergencies or unexpected growth. It is a good idea to create a separate account and put 1-5% of your profits in it each week or month. This account should only be accessed if there is a sound investment opportunity, a sudden need to expand, or if there is no other method for covering necessary expenses.
5. Review your cash flow statement at least weekly
Regular analysis of your cash flow is essential for proper management. This was you can catch things early and know exactly where you stand when making financial decisions. It helps if you are able to access your cash flow statement from anywhere at any time.
6. Working with vendors to spread out payments
It will help if your vendors are willing to be flexible with due dates. This will allow you to spread out your payments, so everything is not due at the end of the month.
7. Cut any unnecessary expenses
Every business should go over their expenses at least quarterly and assess which ones are actually needed. Businesses need to identify wasteful practices and ways to reduce costs, without sacrificing quality or service.
These seven steps to successful cash flow management will ensure that your receivables are coming in on time, that your expenses are manageable and necessary, and that you are monitoring your situation as often as possible. By sticking to these guidelines, it will be easier to stay on top of your finances and avoid the stress cash flow issues.
Every business needs to properly manage their cash flow in order to be successful! Money is constantly going out to handle your daily, weekly and monthly payables, so it is crucial that you have an equivalent or greater cash flow coming in. You need good relationships with your vendors and you won’t be able to maintain those necessary relationships, if you do not make sure that you pay them on time every time. By making sure that you are collecting your receivables in a timely fashion, you will feel confident that the cash you need to pay suppliers is accessible when it is time to pay for your own expenses.
Managing your cash flow starts by finding a way to manage your financial information and then staying organized no matter how big your business grows. It is crucial that you have an efficient system for tracking your expenses and invoices, so that you can analysis what is coming in and what is going out at any given moment. You need a proven and effective system set up where you are able to quickly see which are almost due and which are overdue.
There are online companies that offer cash flow management solutions that can make it easier for you to manage the process directly online. Performing your bookkeeping online will allow you to access it from anywhere and quickly update or reference it whenever the need arises. They have easy to use templates, the capability to send invoices directly to your clients and they can provide you with a variety of reports that will give you an accurate snapshot of your cash flow situation wherever and whenever you need to review it.
Managing your cash flow means staying on top of your receivables and making sure that your terms are being met. These online companies can also send automatic follow-up and/or thank you notes for payments once they are received. Sometimes it is necessary to send a little reminder just to make sure that your client’s pay on time.
Managing and maintaining the cash flow for your company is essential, but it doesn’t need to be a hassle for you to stay on top of it. Find an online alternative that can organize, format and follow-up on your behalf, so you can put your attention into managing your business.
Why Accurate Cash Flow Projections Count for the Future of Your Business
Business owners usually have an intimate knowledge of the inputs and outputs of their companies, and this knowledge is used for projecting new plans for the future. However, not even the most knowledgeable business owner can predict everything with 100% accuracy, which is why they need to appeal to online cash flow management systems that help them identify the best means for growing their business even more profitable.
Eliminating unforeseen complications
Online cash flow systems have the purpose of eliminating unforeseen financial complications for your business. With a lot of factors to be taken into consideration, you may not be able to envision them all. With the help of a reliable online cash flow management system, not only you will be capable of identifying them, but you will also have the means to eliminate them so that they do not affect your business to a high extent.
Accurate cash flow projections made possible
For a human being, it can be quite difficult to calculate all the cash projections for a business down to the last bit of information. When using online cash flow management, however, the complex brain of a computerized system will be put to work, and you will benefit from the most accurate cash flow projections, on which you will be able to base new investments and other financial schedules for your business.
Obtaining more investment money
Acquiring such accurate projections is not essential only for foreseeing the future of your business. An online cash flow system can also help you in obtaining more money from potential investors. In case you seek financial help to expand your business, you will need to present investors palpable figures that are backed up by documents and accurate calculations. With the help of online cash flow management, you will be able to do that and get more money for your company.
Elements of cash flow you need to keep in mind
There are basically three elements that online cash flow management works with. One is the projection of the actual money you expect to gain and also spend over a designated duration of time. Your online cash flow system will also estimate profit and loss in order to help you take the best decisions. Finally, a balance sheet will be emitted by the online cash flow system, so you can have access to all the financial figures of your business at a glance. Based on these figures, you will be able to estimate and calculate the future of your business.
The lifeblood of any small business is cash flow! If you are currently experiencing cash flow bottlenecks or are simply looking for more efficient operational procedures, consider the concepts outlined below. Once implemented, these strategies can improve your business’s regular cash flow.
1. Promptly Send Online Invoices – Rather than wait until set dates during the month to send invoices to customers, bill promptly using online invoicing; once services have been rendered or products have been sold/shipped. If your business works on an hourly rate, establish online billing routines twice per month to ensure that you have regular cash flow coming into your business.
2. Request Partial Payments – For many businesses, partial payments can ensure that you have the capital you need to secure raw materials needed to complete orders. For example, you could request 1/3 be collected upon job acceptance, 1/3 once work on the project commences and the remaining 1/3 upon successful completion of the job. This is a standard business practice and will help provide your organization with more regular cash flow.
3. Offer Quick Payment Incentives – Consider offering a discount for online invoices that are paid early. For example, you could offer 2-3% off of the invoice’s total for payment received within 10-15 days of the invoice date. Consider online billing platforms to provide your customers with an easy payment option.
4. Aggressively Collect Receivables – It is an all too common scenario for small businesses to have a wealth of capital caught up in their accounts receivables. Track late payments using online invoicing software and in particular, pay attention to clients who seem to regularly pay invoices late. Consider charging a premium for clients with regular late payments as an incentive to speed up the payment process. Send a collections letter initially to late clients and if this isn’t successful, consider turning over their accounts to a collections agency.
5. Avoid Early Bill Payment – Hold onto your business’s critical capital as long as possible; don’t pay bills as they come in, but rather pay them near their actual due dates. When possible, establish automatic payment arrangements online to ensure that you never miss a critical due date. Paying your bills on time rather than early will keep more cash in your business’s operational accounts where it is needed.
Successful implementation of the above strategies will ensure that not only you keep more capital in your business’s operational coiffeurs, but that you collect cash from paying customers more efficiently and effectively.
Risk Management is the process of identifying, assessing and prioritizing risks and coordinating resources to minimize negative outcomes. It starts with identifying potential risks that face your business – risks could be internal or external. Things like the weather, your employees or stakeholders, could all be potential threats to the well being of your business.
Once you have identified all the risks you will need to assess the potential harm each threat could have on your business. By identifying the severity of impact and the probability or possibility of each risk you can create a risk management plan.
There are different types of risks and threats to the continuation and longevity of your business. Objective type risks are associated with things that can impact the outcome or objective your business is trying to achieve. What are the objectives of completing a project – what types of events can delay or stop the continuation and finalization of a project – lack of materials – work stoppages due to employee or weather issues, you must define all potential risks so you can manage or plan for them.
Scenario based threats can help you determine various scenarios that could negatively impact your business. There may be common threats to your type of business that similar businesses face that can help you assess and plan for. Charting all scenarios through, identification, assessment, probability, and potential outcomes can help you manage your risk.
Potential risks once identified and assessed fall into 4 categories: Avoidance – how can you avoid the potential risk, Reduction – how can you reduce or mitigate the risk, Sharing – how do you share the risk, and Retention – you accept the risk and budget or plan for it.
Risk Avoidance is the act of avoiding the activity that creates the risk. By avoiding the activity you also lose the potential gains that could be made with the risky activity.
Risk Reduction means reducing the severity or possibility of risk. Perhaps you have a novel idea that you know others could copy – creating barriers or making it harder to copy means others will take longer to get into your market or it will at least slow down the competition – it doesn’t take away the risk it just reduces it.
Risk Sharing involves the sharing of the risk or potential loss with others. Insurance is a great example in this scenario, the potential loss you could face could be covered by paying for insurance and have the insurance company bear the bigger impact should the threat materialize.
Risk Retention is accepting the loss or gain from when a risk occurs. Plan for it, by being ready and having a plan in place you are mitigating the potential for greater loss.
Whatever the potential risks you have in your business creating a risk management can help you mitigate and recover from the things that threaten the longevity and sustainability of your business.
The most important lesson in Cash Flow 101 is never run out of cash! Think about it – if you run out of cash you can’t continue your business – unless the business can be run by you and you have everything the business needs to be successful without cash.
Know you cash balance daily – don’t guess or think you know – understand how much cash you have and know what you will be using the cash for. Stay on top of your daily work, perform today’s financial transactions today and update your accounting system to reflect your cash balance. If you aren’t updating the cash flow balances delegate it to someone else.
Don’t use you bank balance as your cash balance. Your bank balance will not reflect your actual cash flow – use the bank balance to reconcile your accounting cash to determine the proper cash balance.
Have a cash flow statement for today and 6-12 months into the future. Having cash today isn’t going to make much difference if in 3 months you will have none. Knowing where and how you will continue operations into the future with the cash you have or expect to have will help keep you focused on what needs to be done daily.
Cash flow problems don’t just appear from nowhere, every dollar spent or invested today creates the cash flow for tomorrow. Purchasing inventory today and selling it tomorrow means a cash outflow to purchase the inventory and a cash inflow for the revenue realized on the sale. If the sale proceeds are realized immediately – cash inflow is immediate but if cash is delayed you could run short of cash. Understanding the consequences of slow collections can mean creating policies or finding other ways of funding for these short term cash flow shortages.
Be prepared for the future and know your cash situation daily so you can change processes or find alternate sources of funds should you find your business in a cash shortfall. A Cash Flow Statement can help you manage your cash so you are never left wondering why you didn’t see the lack of cash happening or why you have excess cash that could be invested and earning more for your business.
Service Fees or Fees for Services are a relatively easy type of business to account for. Generally there is little inventory to account for and any inventory required is generally very easy to manage as it would be very specific to a job performed. For a Pool Service Company that provides general service and upkeep there may be a limited number of parts needed in addition to specific parts that are required for specific pool failure problems. With each service call a specific type of part may be required or no parts at all. Billing for service time, outlining the job duties for the call, and adding any parts to an invoice are relatively straightforward.
Consultants charge fees for services whether it’s an hourly, monthly, or a charge per service fee. Service companies are like consultants as they are providing a service. If your company provides services only without the sale of goods you likely don’t require a financial software package to do your annual accounting. Your expenses would be limited unless you were a large service company with employees. A one or two person service company or consulting company would require very little in the way of accounting.
As a service or consulting company you still need to get an invoice to your client. If your client comes to your office and pays before leaving a receipt for payment may be all that is require. If you are a landscaping company that works for homeowners you may only need a hand written invoice. If you are a business to business service company or consultant you will likely require a more formal type of invoice.
A financial accounting software package would likely be too much for a service or consulting business. A smaller system without all the other components required in a financial software package is all that is required. Focusing on just the specific software you need to do your invoicing will help to keep things simple. If you require software for payroll or a manufacturing process a different type of software would be needed. Consultants and service companies are not just one person operations but for those that are a simple online invoicing solution may be your best approach when it comes to invoicing your clients.
Fixed Costs are defined as expenses that do not change in relation to the activity of the business. So no matter how many sales you make your costs will remain the same for a given period of time. A good example of a fixed cost is monthly rent or monthly salary. Knowing your fixed costs will help you in creating a budget and will alert you as to how much cash you will need each month to cover your fixed costs.
Traceable Fixed Costs are costs that can be traced back to a segment. Depending on how in depth you like to manage your costs you may separate the traceable fixed costs from the common fixed costs. A Common Fixed Cost could be rent if the rent encompassed all segments of the business, if the rent were to disappear with a segment of the business, the rent would then be traceable to that particular segment. For a business that manufactures 3 types of tables and each type of table has their own manufacturing plant the rent for each plant could be traced back to its own segment.
Common Fixed Costs are costs that cannot be traced back to a particular segment and these costs support the operations of the business. For one receptionist to support the 3 table manufacturing plants her salary could not be traced back to any one individual plant and if one plant were to disappear the receptionist would still be required and would continue to be a fixed cost. It is not always easy to determine whether a cost is traceable or not and the best method to use to determine a traceable cost is to remove a segment, if the cost disappears with the segment then the cost is traceable.
Fixed Costs per unit will change with the amount of activity. A fixed cost such as rent could be assigned to each item of inventory produced. For a fixed monthly rent cost of $2,000 and an activity level of 1,000 units produced in a month the fixed cost per unit is $2. If the activity level increased to 2,000 units per month the new fixed cost per unit would be $1. Each item of inventory would have a fixed cost of $1 assigned to it when determining the cost to produce one item.
Accounts Payable is the amount owed by a business to its suppliers for goods and services purchased and are reported on the balance sheet as a liability. Procedures are required to process invoicing for payment to ensure invoices are not double entered or double paid and they are coded to the correct expense account. Regardless of the size of business an orderly process ensures fewer issues.
An accounts payable process could be as simple as paying an invoice upon receipt and filing the invoice in a file folder for annual tax accounting. Some businesses have entire departments to deal with their accounts payable. Generally you don’t enter a vendor invoice into an accounting system unless someone with authority in the company has approved the invoice.
For companies that receive goods a packing slip comes with the items, the items are verified, signed off on, and the packing slip goes to the accounts payable department to be matched to the incoming vendor invoice. The AP person then attaches the packing slip to the invoice and enters the vendor invoice into the accounting system. When an invoice has be paid at the time of purchase the invoice is given to the Accounts Payable person to be entered into the accounting system.
Procedures for Payments for accounts payable invoices is required to help the AP department pay your vendors in a timely fashion. As calls come into the AP department from suppliers looking for payment your department needs to be clear as to how your company pays their bills. Some companies pay at the end of the month, some pay on demand, some pay weekly, how you pay will be determined by many factors like – cash flow, work environment, efficiency, and vendor terms.
Payment terms that you have set up with your suppliers will have a big impact on your payment schedule. If you do not pay within the terms you agreed to you may not be extended credit by your suppliers. Cash Flow will determine what monies you have available to pay your bills. Setting your vendor terms to match your cash flow will help you to succeed in paying your bills on time. If you receive monies from your clients at the end of each month it would be smart to set up vendor payments sometime after these cash payments have been received.
Work flow and time commitments will also impact your payment schedule. If you have the cash flow to pay but don’t have the time due to conflicting work demands you need to set up a more efficient time to process payments. Setting up procedures for Accounts Payable will keep you organized, efficient, and in good standing with your suppliers.