Cash flow is a crucial aspect of small businesses, because they face higher risks of cash shortage.
A whopping 82% of small businesses choke due to shabby cash flow management. According to Xero insights, one in every six SMEs experience over 6 months of negative cash flow (cash outflow is greater than cash inflow).
So if you’re a small business owner you may want to brush up on the importance of cash flow management and how to do it effectively. We’ve got some small business accounting advice for you.
What does managing cash flow mean?
This means properly planning, accurately tracking, and supervising your business’s cash outflows and inflows.
Why is it important to manage your cash flow?
There’s not just one reason as to why cash flows are important. Let’s take a squiz at them.
Crucial to financial stability – When you have good control over your cash outflow and a solid grasp on revenues, your business will be rich in cash reserves that reinforce financial stability.
Facilitates decision-making – A well-managed cash flow gives you a clear picture of all your costs and revenues, so you can easily make good business decisions.
Allows you to exploit new opportunities – When your expenses are under control, you make better profits, which you can invest on new business opportunities.
Improve creditworthiness – Investors and lenders care about your cash flow, because a well-managed positive cash flow is indicative of a low-risk investment opportunity.
Our top small business accounting advice – Get your cash flow right
Here are a few tried and true tips on how to manage your small business’s cash flow.
01. Forecast your cash flow – Forecast and plan for your future expenses and income.
- For cash outflow forecasting, take a squiz at:
- Cost of resources:
- Raw materials
- Your planned output for a certain period of time
- Cost of resources:
- For cash inflow forecasting, take into consideration,
- Sales statistics
- Current market trends
- Latest buying patterns
- Consumer behaviour
02. Incentivise payments – Enhance cash inflow predictability by offering attractive discounts, advance payment requirements, or other incentives for customers to pay on time.
03. Reduce inventory waste – Study customers’ buying patterns, identify slow moving items and order less of them while ordering more of fast moving items. Also bundle slow moving items with fast moving items for better inventory management.
04. Control your expenses – You may want to try asking for discounts and deals from your suppliers, while streamlining and optimising your production process.
05. Constantly review pricing – By continuously reviewing your pricing strategy, you can achieve two goals:
- Renewing your pricing model – Old pricing models might not work very well against competitors’ newer pricing models.
- Making your products more affordable – By examining the competition you can determine whether your prices are still affordable enough to make customers choose you over others.
06. Use software – Manual cash flow tracking is a mare for growing businesses. Invest in trusted software to digitise your cash flow management process and find the right balance of manual and automated cash flow management.
We can do all of this for you – Top small business accounting in NZ
Well, we’re not all mouth and no trousers.
At Accountsdept we handle our clients’ cash flow management with professional expertise and experience. We’re a top small business accounting service provider in Auckland.
We handle accounting, bookkeeping, payroll, tax accounting, and other financial services, and we offer a range of packages outlining different benefits, designed for several use cases.
Our services are among the best accounting and bookkeeping services in New Zealand and our experts will coordinate with different aspects of your business, advise you on strategies, and directly engage with your financial records to keep them organised and updated.
So don’t be gutted. Focus on your core business while we keep your cash flow positive.
If you want to know why outsourcing your accounting functions is a game changer for your business, check out our Ebook. Drop your email address in the chat and we’ll send it to you for FREE.