As a business owner, you’ve probably discovered the importance of cash flow. A strong cash flow means your business is seeing success, a weak cash flow means somewhere along the line you’ve been making a mistake.
It’s your job to find the mistake and make the needed improvements to get your business where it needs to be. However, it isn’t always easy. There are plenty of factors that play a role in a good cash flow.
To help, we’ve put together a list of some ways you can make adjustments to improve your cash flow:
1. Actively Track Your Cash Flow
Arguably the most important step to driving your business cash flow is to actively track it. Tracking helps you keep a close eye on everything related to your cash flow, that way when there are any irregularities you can make improvements.
If you aren’t already using it, you should consider real-time data. Real-time data will give you the most up-to-date information so you can make immediate improvements should a problem arise. It will also improve your tracking, adding speed and accuracy to your data.
2. Keep Up with Your Invoices
An oversimplified description of cash flow is the money coming in and out of your business. The more money that comes in, compared to the money going out, the better. To make sure the money coming in is more than the money going out, you need to keep up with your invoices.
Be sure you are sending your invoices and reminders on time so your debtors know when their payments are due. Late payments often lead to discrepancies in your cash flow because the money you were expecting, has not been paid.
3. Re-evaluate Your Prices
A possible culprit to a not-so-good cash flow is that you are selling yourself short on prices. To make sure your products or services are accurately priced, compare your business to your competitors. Your prices should reflect similarly to theirs.
In addition to competitive pricing, you should also take into account the cost of materials needed for your products. Prices are always changing. If you notice a rise in material prices, raising prices is an option to offset cost.
4. Study Your Sales Channels
If you adjusted your prices, and you still aren’t selling, it may be time to review how you are selling. Your sales channels can have a huge effect on your cash flow, so you’ll want to make sure you are getting your products or services to your customers in their preferred method.
You could also try limiting your sales channels.
For example, if your most expensive sales channel isn’t profitable — get rid of it.
If ridding yourself of a poor-performing sales channel isn’t an option, look for ways to lower the cost or improve the return.
5. Create (and Stick To) a Budget
While working out the kinks with your invoices, pricing, and sales channels does wonders for the money coming into your business, it’s equally as important to keep tabs on the money going out. The best way to do this is by creating and sticking to a budget.
With a budget, you can plan out your expenses on a monthly, quarterly, or yearly basis and refer back to them frequently to make sure you are on track with your spending. Should you fall off track, your regular reviewing will allow you to catch a problem before it’s too late.
6. Stay on Top of Payments
Just like it is important to keep up with who owes you money, you also need to stay on top of your payments as well. If you are late to make a payment, your cash flow will look stronger than it actually is, which can throw off your overall business finances.
Keep a detailed record of what is due and when and refer back to it often. Be strategic and make payments when it makes the most sense for you. For example, if you have a payment due on the 5th of the month, but usually don’t see an influx of revenue until the 2nd, wait to pay your bill until the 3rd. This eliminates the stress of running out of cash but also ensures your bills are being paid.
7. Utilize Your Forecasts
Forecasts can be a great depiction of where your financials are heading if you are using them correctly. They should provide you with multiple scenarios for different financial situations which you can refer back to when going over your actuals.
Your cash flow will greatly benefit from a recurring comparison between your actuals and your forecasts. If you think of your forecasts as a guide, it will work to show you whether or not you are going to hit your projections and cash flow goals.
Work With an Experienced Accounting Partner
Your cash flow is one of the most important pieces of your financials. Its strength heavily dictates the success of your business. To ensure your cash flow is performing well, you should:
- Actively track your cash flow
- Keep up with your invoices
- Re-evaluate your prices
- Study your sales channels
- Create (and stick to) a budget
- Stay on top of payments
- Utilize your forecasts
While you can do all of this on your own, working with an experienced accounting partner would be advantageous. They’ll manage your cash flow and suggest ways to improve. Adian Professional Corporation is the perfect choice for an accounting partner. We genuinely care about finding better ways to help you manage your cash flow, organize your bookkeeping and develop a budget that sets you on track to meet your financial goals. Set up a free consultation today to learn more!