LETTER : Handling Cash Flow for Your Small Business
Many small businesses run into problems with cash flow, especially when they’re in the earlier stages of their existence. You can use a few of the techniques below to maintain a healthy cash flow and keep money set aside for emergency scenarios.
Keep Track of the Cash
The most crucial part of keeping your business running effectively is monitoring where your money is going. Internal accounting software is important, and you should use it on a daily basis to ensure you aren’t losing money or failing to expand upon profitable practices.
Track Financial Records
Using software to assess cash flow in real-time is an essential move, but your financial records also provide an overarching narrative about the way your business is handling finances. Give these records to your accountant or financial consultant for a more in-depth analysis of your challenges and potential solutions. Looking closely at transactions over time can help you detect theft, wasted money, and managerial oversights.
Stay on Top of Payments and Invoices
Keep customers and regular clients accountable and try to receive invoice payments as soon as you can. When you’re waiting a long time to receive invoice payments you have less cash on hand and fewer opportunities to make meaningful reinvestments in your business. Some customers will even pay sooner or well ahead of time if you give them opportunities.
Save Money by Leasing What You Can
Consider leasing equipment when you can. Not everything needs to be purchased, and you can often save money by leasing instead of buying, depending on the type of equipment and the potential costs associated with insurance fees or repairs. Also, look for deals on disposable supplies or buy bulk at a discount to save money over time.
Strategic Inventory Management
Storage costs money, not just in billing if using an external storage site, but also because of opportunity costs. If your inventory is being kept in off-site storage, consider reducing the amount of inventory you keep to be closer to meeting demand. Storing inventory that’s unlikely to be used soon can waste a lot of money over a year’s time.
Put Money in High-Interest Accounts
Using a high-interest savings account can earn you a significant amount of money over time, depending on the nature and scale of your business operations. If you’re going to keep a lot of money in the bank, it might as well be making you money in interest and dividends. There are many investment options for businesses, so discuss them with your accountant or bank to see if there are alternatives for your current situation.
Use a Sole-Proprietorship
Consider using a sole proprietorship structure because it can benefit your financial situation through lower tax rates. Business income and deductions are listed on your personal returns, which is convenient.
Proper Cash Management Keeps Your Business Solvent
You need to manage cash flow properly to grow your business and prevent losses. Monitor your income and expenses in real-time via financial reports, use storage space efficiently, review equipment contracts to save money, and try to take advantage of interest-based earning potential wherever possible.
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