No matter what kind of business you’re running, proper cash flow management is vital to growth. But while most entrepreneurs understand the importance of having cash on hand, knowing how to manage cash flow is a different story. In fact, many bookkeepers and accountants say that cash flow management is a top concern for their clients.
From invoicing to building a cash reserve, we’ve put together some handy tips to help make cash flow work for you.
Start With Your Invoices
As you might have realized, invoicing is a major part of cash flow management. As a result, it’s crucial to get into the habit of invoicing immediately after a product or service has been delivered. You may even want to consider asking for a deposit or requesting payment part-way through the process to ensure you’re not waiting too long for the funds.
Develop an Invoicing Strategy
For some first-time entrepreneurs, being too polite can sometimes get in the way of getting paid. While you might be tempted to be lenient with clients, remember that your cash flow is on the line, so it’s important to be firm and direct about getting the money you’re owed for a product or service provided. Being firm should also align with your overall invoicing strategy, which can include everything from setting up automated email reminders to offering different payment options such as mobile payment solutions.
Make Sure Receivables Match Payables
While it’s great to get your money on time, you should always keep in mind how your payment terms for customers line up with your payment terms of your suppliers. For instance, if your suppliers require you to pay within 30 days, but you allow your customers to pay within 60 days, you are creating a major gap in cash flow. Therefore, you may want to consider matching your supplier terms of payment to your customer terms of payment to reduce or eliminate any gaps.
Keep Your Books In Order
Of course, your cash flow is only ever as good as your records, so don’t put handling the books on the backburner. Whether you’re working with a professional service or you’re doing it yourself, remember that clean books are necessary to get an accurate picture of your financial situation.
Leave Accounting to the Pros
Just like bookkeeping, sometimes it may be better to leave your accounting to the experts. For instance, working with a cloud accounting firm such as OpenDigits can help you keep an eye on your cash position and forecast your future cash flow. The other advantage to working with an accounting firm is that they can help to track important business metrics such as accounts receivables aging, operating margins, and inventory turnover—all things that you need to stay on top of in order to successfully manage your cash flow.
Build a Cash Reserve
When unexpected situations arise, access to cash can make or break your business. Therefore, one of the most important things you can do as a business owner is to build a cash reserve. Not only does a cash reserve help you weather unexpected events such as an economic downturn, but it can also help you take advantage of exciting new opportunities that can help your business grow. Not to mention, having access to cash can help reduce your own stress as a business owner—something that’s always a good thing!