One of the biggest reasons why businesses fail today is poor cash flow management. “Cash is king” is a popular adage that holds a lot of truth even today. Cash is the backbone of any business, and cash flow management is an important concept for SMEs to be familiar with. In this article, We share with you the top 5 cash flow management strategies that all SMEs must know and use in their financial planning and decision-making process.
Conduct Regular Analysis of Your Cash Flow
Conducting a regular analysis of the cash flow of your business is the first and foremost step to managing it. You must know precisely where the business stands when it comes to cash flow. Therefore, you must conduct these analyses throughout the year at regular intervals. You can do them as often as you like, be it monthly or quarterly. An easy way to get this done is by using online accounting software as it makes it effortless to generate an accurate cash flow statement and reconcile your accounts competently. Moreover, a cash flow statement helps you identify any potential cash flow difficulties and allows you to use that information to get a cash budget for the future.
After you are done with the cash flow analysis, if you find out that your spendings are more than the income, you might need to start making some cuts. The best way to balance the scales is to cut all unnecessary expenses. That said, it is not always easy to make cuts in business. You can start by identifying all the business expenses and then sorting them according to their priority. You will see areas where you can make some cuts while others you can simply not consider cutting back on. You might also find a few cheaper alternatives on the list. For instance, if you spend quite a bit on printing, you could consider going paper-free to make a cutback. You could also become a remote-based firm or move to a less expensive office if the analysis delivers less than pleasant news. As a short-term alternative, you could also finance purchase orders or use a credit line if possible.
Consider an Incentive for Late Payments
You can also reduce the accounts receivable as well as improve your cash flow by having a robust process for tackling late payments. It cannot be disputed that late payments are an issue faced by countless small businesses at one point or another. However, this problem can be mitigated with an early payment bonus that offers clients an incentive to pay early instead of making the payments at the last possible minute. Some businesses even charge a fee for late payments as a deterrent. You can use either one of these tactics to ensure a more manageable cash flow in the long run.
Smoothen the Payment Process for Your Customers
Beyond deterrents and incentives, you can also improve your cash flow significantly by making the payment process easy for your customers. Ideally, your customers should be able to make the payments to you as easily and quickly as possible. Many bookkeeping software available online allow us to create professional invoices. Some have the “Pay Now” option on them that allows customers to make the payment through the invoice directly using a simple one-click method. This not just saves their time but also increases the likelihood of early payments. You can also consider offering payment plans to your customers. Most clients are inclined to pay fast if there are manageable payment plans that they can use. You can also charge a minimal interest fee if you take this option.
Hire an Accountant !
Finally, one of the best ways to improve your cash flow and devise effective cash flow management strategies for your business is to avail of the services of a professional accountant. Accountants help in the analysis of cash flow and identify all the ways to reduce expenses as well as get paid faster. Accountants also ensure that you stay on top of your taxes at all times. Following cash flow management strategies also helps you be proactive in your business and will ensure that you are cash flow positive. Hence, you can accumulate more than you spend.
Here is good read on How Can You Improve Your Cash Flow During The Ongoing Covid19 Crisis?
Get In Touch With DNS Accounting Group!
DNS Accountants is an experienced accountancy firm in the UK. If you are looking for affordable accountancy services in the UK at affordable rates, get in touch with DNS Accounting Group. We provide all our customers with a personal approach when it comes to small business accounting. Moreover, we help you grow by adding value to our services.
Call or email us today for a consultation, and one of our expert accountants will help you out according to your requirements!