Tip on Managing Sustainable Cash Flow for Small Businesses
Cash flow is everything for a business’ growth. Cash flow is the amount of money entering and leaving your business over a given period of time. Without sustainable cash flow, a business will not have enough profits to reinvest into the business, as it enables you to meet your financial obligations, whilst also being able to plan for the future growth of your business. Our Sydney Zetland small business accountants at M.A.S Partners, understand the importance of sustainable cash flow, and have spent years trying to maximise other businesses’ cash flow. As such, we have provided some useful tips, that will help you maintain and grow your cash flow of your business.
Managing your invoices
In the beginning, many small businesses are reluctant to immediately send an invoice after they have delivered their merchandise or service, which actually hurts the cash flow of your business. You want to send invoices as quickly as possible to ensure that you receive your payment sooner. Ensure that you send invoices either immediately, or on a daily basis, as it will improve your business’ liquidity, since payments for your product or service will generally be paid in cash. In addition to this, once you have sent your invoice, be sure not to be too lenient with your customers or clients. Be sure to have an invoicing strategy, that enables you to receive your payments on time. To help with this, the use of accounts receivable turnover KPIs will help tremendously by giving you a gauge on how much money you are losing by not following up effectively on your invoices. As these receivables age, the quality goes down, as it is less likely you will get paid.
Make sure your cash flow statement is accurate
Cash flow statements highlight how much money is moving in and out of your business- and where it is being moved- which reflects the liquidity of the business. A highly liquid business would have a lot of cash- as cash is the most liquid asset- and shows the business’ ability to pay off debt. To manage your business cash flow, you must ensure that your cash flow statement is accurate and up to date. The last thing you want is to acquire debt which you cannot afford to pay off.
Build up a cash reserve
Although you do not want to hold onto too much cash, as it could be reinvested elsewhere, especially in the early stages, having some excess cash will help your business tremendously. A cash reserve helps you handle unexpected events by providing a cushion. In addition, if the opportunity prevents itself, you are able to use this excess cash to take advantage of it.
Hire a small business accountant
The most effective and efficient way to handle your cash flow is to hire a small business accountant. Although it requires an initial investment, the payoff is grand in the long run. Our small business accountants at M.A.S Partners are experts in cash flow analysis and can help your organisation grow tremendously. In addition to cash flow, we also manage your accounts receivable to ensure that you are paid what you are owed. For more information on our small business accounting services, click here.