When it comes to the smooth operations of a business, financial management plays a key role – as they say, “Cash is the King.
” Whether your business is expanding or struggling, effectively managing your cash flow is critical, and for many, it is the key to business survival.
Well-managed finances are one of the great ways to ensure the success of a small business. However, maintaining a dynamic equilibrium is difficult for businesses.
According to studies, nearly one-third of businesses fail due to a lack of cash. And the coronavirus outbreak just worsened the situation for many small business owners.
That’s why it’s critical to follow the right business practices and use accounting software to manage cash flows.
Thankfully, there are myriads of ways businesses can maintain a fine balance between accounts receivable and accounts payables.
In this post, we shall share with you the top 8 tips to easily manage cash flow using accounting software.
Ready to find out?
Let’s get started…
Before we get into the strategies to improve and manage cash flow in your business, let’s first define it.
What is ‘Cash Flow?’
A cash flow is a payment (in a currency), typically from one party to another. The term ‘cash flow’ is most commonly used to describe payments that are expected to occur in the future, are thus uncertain, and must therefore be forecasted using cash flows.
Cash flows can be both positive and negative. It is computed by subtracting the cash balance at the start of a period, also known as the opening balance, from the cash balance at the end of the period (which could be a month, quarter, or year), also known as the closing balance.
If the difference is positive, you will have more cash at the end of the period. If the difference is negative, this shows you have less cash at the end of a period than the opening balance at the start of the period.
For the smooth functioning of a business, cash flow management is done. Cash flow management implies delaying cash outflows for as long as possible while incentivizing customers to pay as soon as possible.
Tips To Manage Cash Flow Using Accounting Software
1. Maintain a Cash Flow Projection
The first and foremost step to managing cash flow is to set your financial goals for the next six to twelve months.
This way, you can keep track of your finances and avert gaps. The best way to create a cash flow forecast is to keep a monthly report that lists income and expenses.
For that, you can use accounting software. Accounting software can assist you in keeping track of spending trends. Be pragmatic in your cash flow forecasting by including all fixed and variable costs.
2. Accelerate Receivables Recovery
Receiving late payments can be a reason for the lack of cash in the business, which is not wise. So, the best strategy to manage cash flow is to bill early and collect promptly.
To avoid late payments, bill as soon as possible and make invoices as clear and detailed as possible.
Rather than waiting until the end of the month, send an invoice as soon as the goods or services are delivered.
In case of a big order, send progressive invoicing while you manufacture the goods or provide the service.
For example, you can request a deposit with the order and then a percentage of the payment at various agreed-upon timeframes.
Make sure you never lose track of your receivables or miss following up on a past-due account.
Remember, the longer you take to follow up with a customer, the less likely it is that you will recover the money due. So, be prompt and regular.
3. Maintain Good Relationships with Lenders
Cash is a primary requirement to run a business. Often businesses lack the cash to run their operations, so they require a cash injection from a bank or lender in the form of credit or an overdraft.
In such a situation, it is critical to maintain good relations with your financial institutions. Make sure you make timely payments; it will help build trust.
Maintaining strong relationships with banks/lenders can help you obtain finances easily in the future if your business requires financial assistance.
4. Stay On top of Your Inventory Management
Stock management is yet another important part of your business. Hence, it is critical to reconcile your stock records at the time you reconcile your bank account (maybe weekly or monthly, or bimonthly).
It will help you know which items are still in stock and which need to be reordered. A well-managed stock control system will help you improve your cash flow by preventing you from stockpiling and blocking all of your money. With robust accounting software, you can always manage your stocks and improve your cash flows.
5. Obtain Credit
If you’re planning to grow or expand your company, you’ll need sufficient cash to meet your overhead. Well, if you don’t have it right now, no problem.
You can always rely on a bank or a funder to obtain a loan or credit. Bank overdraft or short-term loans are preferable in such situations.
Banks are more than ever willing to lend to a company with a draft service agreement or letter of intent.
Once your client pays off all your debts, you can pay back your loan. This way, you’ll only pay interest to the bank or financial backer for the time you need the money.
6. Manage Your Cash Outflows.
If you have an option of delaying your payables, make sure you delay that. Of course, why should you pay early when you can pay late?
All you have to do is to figure out how late you can pay your vendors without incurring late fees or jeopardizing your relationship.
This way, you can have the money in your account and utilize it to meet an urgent business and later pay your vendors.
7. Identify Business Risks and Prepare Ahead of Time
Running a business entails many risks and serious challenges. Considering these challenges and risks in advance can help you manage the cash flow.
You can identify potential cash flow issues in advance by updating your cash flow forecast on a regular basis. Using accounting software, you can always tackle problems more quickly and efficiently.
8. Sell Off All Obsolete Inventory
Do you have obsolete inventory or equipment that you no longer use?
Sell it off to make quick money.
Any idle, obsolete, and non-operational equipment or inventory only takes up space and ties up capital, which is no point.
The best is to sell them all and make money that you can utilize for a better purpose. Equipment or machinery that has been owned for a longer period of time will have a book value equal to or less than its salvage value, so a sale may result in a taxable gain.
Wrapping it up…
So these are the top 8 tips you can use to manage cash flow using accounting software. There are myriads of accounting software; however, make sure you buy the best one.
When it comes to the best software for managing cash flows, BUSY accounting software tops the list.
BUSY Accounting software can help you organize your expenses, bill clients, and pay attention to your bottom line.
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