Effective Management of Cash flow is essential for the smooth running of businesses because it determines how much money is coming in and going out of the company. It is crucial for all sorts of companies but is very central to the performance of small and medium-sized enterprises. For SMEs, it is necessary to have enough money to pay their creditors and avoid extended cash shortages, mainly caused by a massive difference between cash inflows and cash outflows.
Cash flow issues generally arise when your payables are due before your receivables. In return, you won’t have enough cash to pay off your monthly payroll or subscriptions until your next payment arrives. Subscriptions are why it is crucial to managing cash flow in a small and medium-sized business.
Here are some of the top tips that will help you manage your business cash flow statement better.
Lease all the equipment from banks: Many business owners believe that leasing equipment, real estate, or supplies are more expensive than buying them. It is quite the opposite. While you might have to pay a bit extra markup over leased items, it usually doesn’t take a significant toll on the regular cash-flow statement since the payment breaks down into installments. By leasing, you pay in small increments, which helps improve cash flow. A bonus is that lease payments are a business expense.
Prioritize debts – Pay off debts with high interest rates first: One of the most common things that disrupt a new business’s cash flow is having debts with interest rates piling up. It would be best if you prioritized the repayment of your debts such that any debts with mounting interest rates paid off. Having high debts causes difficulty in managing the cash flows and is a common problem that a company faces especially new and small businesses. The leading cause of this problem is usually a high-priced loan with higher interest rates taken from the bank; because of this, the net inflows reduce, which causes you to pay the debts from your profits and retained earnings which can further lead your business to go in deficit. The best solution to having extensive debts can be refinancing your loans. Refinancing the loans means replacing the high-interest rate loan with a lower interest rate loan, reducing the payments by decreasing the interest rate. Moreover, if the business must make higher payments, you can also consider cutting other overhead expenses, such as finding a cheaper supplier to reduce your cost of sales.
Optimize your costs: Usually, for small businesses, debts aren’t too high either, or most likely, you are only spending on things you need to run your business. However, if your debts are getting out of control, it’s about time that you look at your financial statement and analyze your costs. Start by looking at the subscriptions you rarely use. Unsubscribe from all such subscriptions. Cut down the office decorations and other expenses that add to your budget. Negotiate the payment terms with vendors and agree on a discounted or flat rate to minimize outsourcing costs. You can also get rid of any assets, such as that delivery van that you rarely use. Another significant component that takes up a lot of additional budgets is the marketing costs. Optimize your advertising campaigns and switch to more cost-effective methods of marketing such as social media.
Reassess your customer payment terms: If your payment terms give your clients the leverage of several weeks in making payments for products/services purchased, now is the time when you might want to reassess those payment terms. Reduce the payment time by half, so you get payments earlier, thus helping you boost your company’s financial standing instantly.About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.