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Cash Flow Strong - Complete Controller

One crucial concept for entrepreneurs to understand is that it becomes difficult for a business to survive in the market when its’ expenditures surpass its’ income. All businesses, particularly start-ups, must keep a sharp eye on cash flows in order to avoid serious business collapse. When it comes to a business, income is the number one priority.

An important element of cash flow is that it provides vital indicators of a business’ current financial health. As important as it is for business owners to know about and manage different sources of income, they must also have an awareness of cash inflow so that they may allocate their time and energy accordingly. It is the responsibility of entrepreneurs to know the exact figures of cash flow as these alerts them of where and when to spend. Check out America's Best Bookkeepers

What Entrepreneurs must do?

Entrepreneurs must keep business owners updated with accurate daily cash flow to plan for a better spending process. On the other hand, those owners who are not aware of cash flow predictions put themselves at risk of failing in the market.

From the start, every business must follow and evaluate their cash and how much must be paid to employees, vendors, and others. Additionally, they must be aware of the amount they are getting as profit from their customers. If this is not done, the business could be at risk of failure. Not knowing the inflow and outflow of the cash in a business can create serious trouble. Check out America's Best Bookkeepers

How to manage the cash flow?

The following points illustrate how a business owner can easily manage cash flow in their company and have an accurate representation of its financial health.

Make a budget

Understanding the inflow and outflow of cash is important to develop a better plan for spending. Timing is the key to creating a budget that details when to buy tools, supplies, and raw materials and how much sales are coming weekly, daily or monthly. The budget should include everything from salary payments and daily expenses; every penny spent should be added to the budget. This budget must also include the peak times of the cash inflows and outflows.

Track your Budget

Keeping track of your budget should not be a timely process, but it is crucial that every business owner make a frequent analysis of the plan to ensure higher cash inflow. An accurate overview of cash flow must be taken regularly to pinpoint issues and trace them to their source. If the budget shows a decrease in expected values, it is important to find its reason. However, if the outflow shows an influx of more than expected, sourcing this reason is also crucial.

After the causes of any discrepancies are determined, the owner can make alterations and corrections to business planning and/or the budget. Check out America's Best Bookkeepers

Include a Plan B as Backup

Having a solid Plan B is a wise precaution for any business. This Plan B not only benefits the business in the long-term, but it also offers support for the company by bringing awareness to which measures must be taken if certain troubles arise.

No matter how much time is spent on creating a budget, every business must be prepared for sudden causalities. These losses may cause havoc among members if the company is not well prepared. Having a backup plan saves time that would be spent in chaos and allows it to contribute to dealing with the trouble.

The Plan B must cover the cash inflow in order to keep the system running when all sources fail and should hold the business stable until operations return to normal.

Provide Bills faster

Making the billing process faster and more accurate can improve circulating cash quickly. A great technique for faster cash inflow is to give discounts to customers who pay bills within 10 days. Delaying the billing process for more than 30 days places much stress on the business, as it may be in urgent need of cash. Such conditions can create financial instability in a company.

Check out America's Best Bookkeepers 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. Check out America's Best Bookkeepers
Finance Manager - Complete Controller

The primary aim of a finance manager is to manage the cash flow (inflow and outflow). Generally, the finance manager acts as an intermediary between the investor (individual and corporations) and the firm’s operations. The finance manager is responsible for seeing that the operating needs are financed from operating sources to avoid any mismatch. Check out America's Best Bookkeepers

Depending upon the agreement between the firm’s finance manager and a third-party contract, the terms of services provided will either be paid in cash, credit, or a partial mix of both? This agreement of payment type is essential when the finance manager is accounting for account receivables, purchase of inventory, and account payables. The finance manager needs to consider the terms for payment or receipt, such as 30 days, 60 days, and 90 days. In essence, they are responsible for cash management, credit management, capital expenditure management, and capital budgeting.

Concerning goals on a macro level, they are also responsible for creating value-for-money for the firm’s shareholders. As earlier stated, the finance manager, acting as a bridge to shareholders, has to have complete knowledge and awareness regarding investment decisions, capital budgeting, valuation of securities, and risk associated with the financial contracts.

In simple terms, the cash flow of the firm comprises of many facets. Cash raised from the investors by sowing in more equity, loan subordination, or selling financial assets (such as bonds, shares, stocks, and warrants). It could also be regarding investment in tangible and intangible assets (brand name). Cash generated from operations. In essence, the sales are deduced through working capital budgeting, such as how many products were sold, the cost of goods sold, and the operating expenses and operating income. We must add in the non-expense amount back into the net profit to see how much cash was generated while calculating cash flows. Check out America's Best Bookkeepers

It is vital to remember that an increase in accounts receivable and inventory is a decrease in cash and needs to be deducted regarding operating needs. Put. It is cash-outflow. Simultaneously, an increase in accounts payable is an increase in cash-inflow. This is how the working capital cycle is assessed in a cash flow statement.

Last but not least, it is inherent that the finance manager should also match the cash flows in accordance with repayment of financial obligations (such as loan payments along with interest). On the other hand, it is at the discretion of the top management that investment is paid either out, in terms of dividend payments, or resort to capital gains).

Thirdly, the valuation of assets (tangible and intangible) is ascertained by its cash flows, as it incorporates both the traits of the time value of money and risk premium. In a free market, the valuation of the asset can be ascertained through demand and supply.

Capital Budgeting

It is a tool provided to the finance manager in deciding which investments are high yielding and less risky. Such projects are credible to generate cash flows for many years in the future. The choice to say yes or no to a project on Capital Budgeting largely depends on evaluating the project’s cash flows and related expenses. Mainly there are only three things, which the top management looks at while making decision-related to Capital Budgeting: Check out America's Best Bookkeepers

Payback Period

In essence, the Payback Period is associated with recovering the initial cost for a Capital Budgeting project. By following this process, decision-making is relatively easier and quicker if the payback period is less than the projected one and is normally accepted.

Net Present Value (NPV)

While working on the Capital Budgeting project, the Net Present Value (NPV) implies the project’s anticipated influence on the value of the company. Capital Budgeting project yielding a positive NPV is expected to elevate the value of the company. In simple words, a project with a positive NPV should be an acceptable factor when it comes to the process of decision-making. To calculate the NPV, one needs to minus the project’s cash inflows from the present value of the project’s cash outflows.

Internal Rate of Return (IRR)

To put it simply, the Internal Rate of Return (IRR) of any project related to Capital Budgeting is the base rate where NPV equals zero. If the IRR is greater than the cost of capital, the investors’ decision should be positive.

Check out America's Best Bookkeepers 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. Check out America's Best Bookkeepers
Cash Flow Log Jam - Complete Controller

This statement might sound like a duh moment, but a business’s growth requires positive cash flow. It’s no surprise that businesses, especially small start-ups, have cash flow log jams on occasion. These cash flow stop ups can be caused by businesses that put their proverbial eggs in one basket by making a sizable sale to a large company. While that is fantastic on the surface, these types of deals typically take 120 days or more to pay the invoice. Four months is a long time to go without paying bills or, even worse, employees.

Other issues that can jam up cash flow are slow payments on accounts, extending too much time for customers to pay invoices, or not a large enough credit line. Here are four ways you can avoid a cash flow log jam. Check out America's Best Bookkeepers

Set Reasonable Payment Terms

As the business owner, you set all the terms when it comes to accounts receivable. You can handle the cash flow issue in many ways when it comes to payment terms. They are:

  • Require payment in full upfront
  • Require partial payment upfront
  • Set shorter payment time limits
  • Require weekly payments

While you should be customer-focused when you establish your business practices, you also have to keep in mind that you have bills to pay, daily operations to keep running, and employees (or yourself) to pay. You have to find a balance of what the customer needs versus what your business needs. Choose the payment terms that best serve your business first. If you get into a cash flow log jam, you could go out of business. Then your customer loses also. Check out America's Best Bookkeepers

Form an Excellent Bank Relationship

The bank your business uses will be the most critical business relationship you have outside of investors. Setting yourself up to have a healthy and positive relationship with your banking institution can be extremely useful for your business cash flow. You can:

  • Establish higher credit limits
  • Establish multiple lines of credit
  • Establish longer payment terms
  • Establish overdraft protection

The most crucial aspect of the banking relationship is that it be established and healthy before you have cash flow issues rather than a scramble to work through problems after the fact.

Communicate with the Customer

Once a purchase order is issued, it is typically too late to communicate needs and get any payment expedition. If your business is having cash flow issues, make sure this is communicated to the customer at the purchase time. While you don’t have to go into detail, you can find a way to explain to the purchaser what your needs are, even if they are outside the standard terms the customer is used to or is established in your business.

If you are upfront with your customer, most will agree to quicker terms. You can also consider temporarily changing your payment policy or terms to get through the cash flow log jam. Check out America's Best Bookkeepers

Understand Your Customer’s Payment System

Understanding your customer’s accounts payable system will ensure you know when and how much you will be paid. Smaller businesses may be more flexible to expedite payment outside of their established system. Simultaneously, larger companies may have less flexibility if there are more working parts when it comes to accounts payable. In some cases, there are processes and approvals required, and the interruption of the process can be too disruptive to the system. It is crucial that you speak with the company before the purchase or quickly after a cash flow issue is discovered.

Conclusion

Most businesses don’t get off scot-free from having cash flow log jams. There are many reasons they happen, some in your control, and many that are not. Most importantly, it would help if you handled those cash flow jams to get the flow open before the damage is irreversible.

Check out America's Best Bookkeepers 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. Check out America's Best Bookkeepers
Cash flow management - Complete Controller

Financial statements and audited reports are preferred to gauge the financial health of the business. The statement comprises an audited report stating whether figures and record-keeping are qualified or unqualified. The balance sheet’s main components are current assets, current liabilities, non-current assets, fixed assets, non-current liabilities, long-term liabilities, and equity (which primarily comprises of capital, retained earnings, and long term reserves.) The second statement is a profit and loss statement, also called an income statement. This statement depicts the revenue and loss position for a specific period. There are various headings under this statement, such as sales, cost of goods sold, depreciation, financial expense, and many other particulars. It gauges the operational efficacy, net profitability, and also the earning per share. The third and perhaps the most important statement is the cash flow statement. This statement is divided into three significant components, cash flow from operating activities, cash flow from investing activities, and cash flow from financing activities. Check out America's Best Bookkeepers

To manage the firm’s cash flow statement effectively, the finance managers adopt their own unique and preferred methodologies for better management. At first, the entire net profit is picked up from the income statement, and non-cash items (such as depreciation and amortization) are added back into the opening figure of the cash flow statement. To simplify the cash flow statement (for management’s ease), finance managers view it from a different tangent. They categorize it mainly into two main domains, which are “Needs and Sources.” Sources are the managed funds that the company generates through its operations and working capital acquired outside the firm. Needs are requirements that are funded through external sources.

The statement is divided into two categories, short-term and long-term. Check out America's Best Bookkeepers

Figures extracted into operating sources are then filtered through operating needs to arrive at a net cash flow position from working capital activities. This figure entails how much cash the firm generated from its primary operations and it foretells the position of working capital requirements or not. If the value is negative, it implies that the inflows are less than the firm’s outflows, and the company requires additional funds to meet its working capital requirements. Upon seeing the picture of the figure, the business is in a strong position to make an educated decision to secure any additional financing requirement or not. Naturally, the business will not take any decision to affect its liquidity and gearing ratio. This will also help the business in analyzing that there is no mismatch in the balance sheet. If such an incident does occur, the business can go into balance sheet restructuring and improve its financial position in the eyes of the shareholder and investor. Check out America's Best Bookkeepers

Non-Operating sources and non-operating needs to tell if the company is facing any stress on its cash flow due to capital expenditure and unnecessary dividend payout. If the pressure is not controlled, the impact can flow into operating sources and needs, which may negatively affect the operations of the business and increase the company’s leverage position.

In essence, cash flow management represents true financial health as opposed to the income statement (where depreciation and amortization are expensed out). The non-cash items are added back into the cash flow statement to get precise net cash flow. Furthermore, all those liabilities and expenses, which are provisioned but not paid out are also added back (such current portion of long-term debt or financial lease). The business’s primary plan is to make a profit and generate revenue. Even if the income statement reveals a healthy profit for the company, due to specific accounting methodologies and deferment entries), it is the management of cash flow which will depict the actual policies that business complies.

Check out America's Best Bookkeepers 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. Check out America's Best Bookkeepers

Why do startups have a struggle dealing with cash flow complications

Small businesses and startups are vulnerable to cash flow difficulties. There are reasons for this. It can take some time before the business starts making its first sales. The pre-trading duration often includes suffering costs without receiving any income in return.

Suppliers may call for early or immediate payment from the small business since the startup has not established a track record of paying their bills on time. A startup often has to devote up-front on expenditures such as product and marketing development.

The startup will not have stashes of cash put together from profitable trading. This is an imperative source of cash called “retained profits.” Check out America's Best Bookkeepers

During its early months of business, a startup faces its most critical challenges in handling their cash flow. Without careful planning of cash and careful management, the startup may lapse out of money. This is a brief introduction of why cash flow difficulties are a significant reason for business disaster amongst startups.

Why is Cash Flow Forecasting Important for most Startups?

Cash flow is what runs a small business. It is its lifeline. Therefore, it makes sense that a startup should forecast what might happen to their cash flow so that it has enough to survive.

If, in the case where a startup depletes its cash funds and fails, at that moment, it would be such a pity if the startup owner had not, in any case, seen it coming.

Startup owners identify potential losses in their cash balances beforehand. They need to see their cash flow forecast just as it is an “early warning system.”

Cash is the king when you talk about a growing company’s financial management. The time duration gap between disbursing the employees/suppliers and learning from consumers is the problem. Through a precise cash flow projection, startup owners can deal with the troubles well in advance before it strikes a problem. Check out America's Best Bookkeepers

How to generate early profits

Startups should emphasize profit-making. Those startups who have preserved their model asset-lite will be the ones who are lucrative in a short time when compared to other enterprises. Considering those who are focusing on an e-commerce startup, the initial years will be tough for them. It all comes down to becoming feasible since they are loaded with colossal marketing charges to entice visitors online.

The adjustment of these online visits resulting in sales is your chance to gain market opportunity, the capability of the startup to gauge customer acceptance. The owner must also ensure that they are up-to-date with their bookkeeping skills to calculate accurate profits.

Your Takeaway from This Blog

Once a startup businessperson gets her/his business up and running, various strategies can be used, and value can be amplified at different sales, buying, or in customer contact. Check out America's Best Bookkeepers

The main point to remember is to check and measure what will work and what will not because no plan or strategy works flawlessly every time.

The basic notion is to increase the speed of turning the supplies and materials into products, receivables into cash, and inventory into receivables.

Even after playing safe and smart, a startup owner might anticipate a situation where she/he does not have adequate cash to pay all of their bills.

This does not mean you have failed as a successful businessperson. It is just that you were unable to predict the future of your startup perfectly. In a perfect scenario, a startup needs to have enough cash so that it can sustain itself for six months’ expenses. The owner will feel less pressure and can give all of their focus on providing quality products and services.

 

Check out America's Best Bookkeepers 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. Check out America's Best Bookkeepers

Hand drawing a red line for sales growth on a graph displayed on a blackboard.
Positive cash flow is the lifeline of SMEs (small and medium enterprises). It is vital to supporting and raising a business. Cash flow is not just bookkeeping the amount of money coming in and going out of a business. SMEs can save money by adopting the strategic approach to control cash flow. From the bookkeeping, this saved money can be invested in new markets and products. Loans can be paid off by controlling cash flow. SMEs will be in a much stronger situation with positive cash flow and can easily attract financiers and lenders with attractive funding conditions and at greater discount rates.

 Steps to Positive Cash Flow

1. Targets for Cash Flow

Set targets for positive cash flow. Generate a forecast and update it on a weekly basis to have better control over cash flow.  Andrew Jhonson, a financial advisor, states that controlling the creditors setting is important for the attention, satisfaction level, and ownership to succeed and rise. Bookkeeping of incoming and outgoing cash should be implemented to have better control.

2. Payment Terms are Clear

It is crucial for controlling cash flow to have clear terms for payment. This determines when and how will you be paid without delay. The CEO at the National Specialist Construction Council, Suzanne Nichol, pointed out that if the company doesn’t keep record of overdue payment, they will not be able to manage the cash flow.

3. Invoice Promptly

Pay invoices promptly to have positive cash flow in SMEs. Marion Thomson advised to clear invoices as soon as possible. Sending invoices through emails is a more efficient way as it is delivered quickly and it’s automatically recorded in the sent mails. Bookkeeping will help you to have a look at all of the transaction history.

4.   Easy Payments for Customers

Payment schedules should facilitate the customer as much as possible. Thomson advises. “Try to avoid being paid by check as it will result in delay before the money arrives in your bank account,” she says. “Online payments are a much better option.”

5.   Offer Clients Payment Packages at Fixed Rates

To ensure positive and stronger cash flow in SMEs, offer payment packages at fixed alerts and at periodic intervals.

6.   Establish Payment Schedules to Minimize Debtor Days

Many SMEs practice a long duration of payment and invoicing. This should be minimized to manage cash flow effectively.

7.    Manage Cash Flow by Utilizing Technology

Cash flow management becomes quite easy if we use technology. Many accounting softwares have been developed and adopted by entrepreneurs who have limited time for management.

8.   Focusing on Cash Flow Rather than on Profit

If your cash flow is in order, your profit will be in order. “A lot of new businesses do not make it past six months. They might have been a profitable business eventually, but they need to have a good cash flow to survive” Agnes Cserahti says. She estimated that 90% of SMEs never planned for cash flow, though they have profit forecasts of many years. This is one of the major reasons for failure in an early stage of business.

New business should work with clients who are reliable and who pay quickly.

9.   Training Employees Regarding Cash Flow Monitoring

Few SME’s, for example, Manchester-based Ratio Law LLP, assign a devoted individual to follow the money coming in and going out. Training of staff regarding positive cash flow management and bookkeeping should be scheduled to get optimum benefits.

10.  Keep Bank Informed

Your bank can suggest business helpful services. For example: overdrafts and credit, mainly when they are starting out. So you must be well aware of these services.

Conclusion

Having clear payment terms and invoicing through emails are two of the important steps mentioned above to create a positive cash flow. Following all of these points will ensure your success as an SME.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services 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 and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

Cash flow on black blackboard with businessman
Among the most crucial concerns of an SME, cash flow management is a major one. SME is a small or medium sized organization which employs less than 250 people who tend to produce a revenue of less than 20 Million Euro. Such enterprises have to face a number of strategic as well as tactical challenges which cover up the cloud of cunning challenges. It faces challenges in terms of technology, communication, finances, human resource and marketing. Such enterprises also focus upon the relationship of marketing as well.  Following are the certain steps which can be implemented in order to conquer issues related to cash flow management.

 

1. Cash Flow Measurement should be Accurate

Cash flow management is a large task, therefore it is necessary to take care of how to overcome cash debts. Cash flow must be recorded accurately through several available bookkeeping softwares such as QuickBooks. This helps in scheduling the return dates of the cash flows. This also aids entrepreneurs in alarming scenarios when the returning time of cash is near. Larger investments are made in order to drive larger profits which ultimately flourishes an enterprise. Therefore, cash flow measurements are important to overcome issues encountered with cash flow management.

 

2. Improvement of Awaiting Payments

An enterprise must try to return their cash flows rapidly. The following are certain techniques which can be used to clear all payments:

1.  Discount to customers must be offered in reward to their efficiency in paying their bills.

2. 
At the time of order placement, customers must be asked to make payments.

3.  Customers unable to pay cash can use checks or credit cards to pay their bills.

4.  Keep updating your inventory system in order to improve payment methods to make larger payments easily.

5.  Transactions must be clearly observed and tracked through issuing invoices regularly and bookkeeping software.

6.  O.D is an efficient tool which refers to the cash on delivery in order to overlook payment delay.

 

3. Not Enough Total Margins

Economists talk about the supply and demand of goods and services and portray certain rules and regulations for efficient supply and demand of goods and services for the exact determination of price. A similar rule goes for SMEs who face cash flows due to wrong determination of prices where they sell goods and services for a low price ultimately falling into debts. Companies must go for appropriate determination of prices to avoid cash flows.

 

Final Note

SMEs are enterprises which deal with having less employees which generate less revenues. This ultimately leads a company to take debts from other companies resulting into cash flows. The term is given to the state where management of cash is required when a company spends more than its earnings resulting into debts which then must be returned through appropriate scheduling of cash returns. These transactions are to be recorded through bookkeeping software.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services 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 and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

 

 

Crisis Concept. Money Flow in Black Hole extreme closeup
Payroll is a very important issue for a company/business. If the business is running short on funds, the payroll finances must be arranged to pay for its employees. Small business owners can have a contract with payroll companies to ease their administrative work in payroll or certain expenses can also be delayed to make for wiggle room in payroll. Train your staff how to process payroll in time. If after reviewing your payroll schedule, the system is still not working, there is likely a large cash flow problem in the business.

SOLUTIONS FOR CASH FLOW AND PAYROLL PROBLEMS

Small business owners can make payroll on time and manage their cash flow problems by implementing these cash elevating policies.

Short-Term Business Loans

To fulfill an urgent requirement of payroll funding, you can borrow money or take small loans to fund the payrolls. If the amount is small, the money can be paid back using small business lines of credit.

Collect Late Payments and Outstanding Receivables

Many customers delay their payments. In a small business, if you are running short on income, quickly generate invoices and send them to customers immediately. This will minimize the delayed payments by the customers to some extent.

Offer them discounts if the payment is made within a given time frame before the deadline.

Factor Your Invoices

  • Always encourage your clients to pay quickly
  • Use Invoice Factoring for typical slow paying customers
  • Be Persistent with Notices
  • Retain Legal Counsel
  • Link with other small business owners in the trade union
  • Utilize the services of a collection agency

 Decrease Business Expenses

Keep a strict check and balance on the expenses going on in your business. Do not sign any reimbursement application before double checking the purpose, date, and invoice number.

Eradicate unnecessary expenses in your business. If your advertising is costing you an arm and a leg, then consider using social media, which is normally free, and directly interact with your potential customers.

Liquidate High-Value Assets

Liquidating high-value assets can be done as a last resort but, still, it provides an option for making payroll in time. You can sell a valuable asset of your business which is not being used or is not a part of the capital investment. You can sell a car to manage payroll funding on time. Though this loss cannot be compensated, as you most likely do not get the asset back, it will eradicate the chances of inconvenience between you and your employees.

Small Business Line of Credit

The small business line of credit works like a credit card. You simply pay interest on your present due balance, not on the entire credit line stretched out before you. When you pay back your balance, the sum of the existing credit rises and becomes accessible to borrow again in the future.

Outsourcing Contractors

Small business owners have to manage a lot of business operations. Especially, at the start of business, many small business owners hire more staff than is actually required. Extra payroll funding has a negative effect on small business income and growth. 

Small business frequently make the mistake of hiring a new employee for each new task that arises instead of dividing it among existing staff. This creates a huge issue of payroll funding for the staff if the business runs slow.

Before hiring another team member, work on other options like outsourcing contractors. Find automated ways for various tasks to reduce the burden on your team.

Refinance & Consolidate

Debts in a small business often result in cash flow problems. Small business owners can refinance their business by consolidating the debt they have taken. They will have to pay back the debts on a monthly basis and they are given the relaxation of years to pay back the small amount every month. Consolidating can also save time and money currently spent on managing a complicated cash flow management process.


CONCLUSION

Small business owners can use many strategies to sort out their cash flow problems. You can manage and cut back on expenses, encourage your clients to pay on time, or consolidate your debts. In the best interest of your business, consider the above tactics to manage your cash flow problems. 

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services 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 and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

 

 

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The “three Cs of lending” is a system that banks and other lending institutions use to determine the creditworthiness of potential borrowers. The system typically measures the three characteristics of a client and the loan’s conditions in an attempt to estimate the likelihood of a credit default. This technique of assessing the borrower takes into account both qualitative and quantitative measures. It is imperative to understand the basic criteria for personal debts, commercial credit, or bank loans for educational or other reasons as well as the role they play in meeting your financial needs.

1. Cash Flow

Your cash flow shows how much of the money you make remains with you upon debt repayment and expenses. A Cash Flow Projection demonstrates your income and expenditure looking forward into the future. Thus, cash flow of an individual eventually defines their capacity to repay a loan. Consequently, a lender looks at the cash flow of a borrower to determine their capability to pay back the loan.

While anyone can look at their cash flow for a very short period, such as a month, a quarter, or a year, you must know that most lenders want to take into account cash flows that are projected at least three years ahead into the future. Some businesses take cash flow as earnings before amortization, depreciation, and interest and call it a pro forma projection.

Banks and other lending organizations use cash flow as a financial tool to gauge whether a company is able enough to meet the regular monthly debt payments. Thereby, they ask for their cash flow statement to obtain a ratio usually known as a minimum-debt-service-coverage (minimum DSC) ratio requirement. The ration helps them see whether a business has enough cash coming in every month from its profits after debt repayment and expenses. Different lenders use different ways to calculate DSC ratios. However, the rule of thumb is to maintain a 1.2-1.25 DSC ratio.

2. Character

In terms of lending, character is also known as credit history, which is the most important of the three Cs. This is because it determines a borrower’s overall reputation by taking into account all track records of repaying debts. The shareholders who will guarantee the debt and the management of a company eventually all come under effective scrutiny in order to figure out whether they are dependable and will certainly pay back the owed money. Consequently, the lender will often take into consideration the credit history of a company owner as well to assess their honesty and reliability. Thereby, consideration regarding owners may also include:

  • Whether or not they have utilized credit before
  • Whether or not they pay their bills on time
  • How long they have been in business
  • How long they have resided at their respective postal addresses
  • What professional, entrepreneurial, or other positions they had before initiating the business

When ascertaining the character of the borrower, lending institutions might also consider the creditworthiness of the key principals of a business. This score is numeric, usually ranging from 300-850, derived from the borrower’s bookkeeping and financial information in their credit report. Lower scores give a red signal, while high scores typically accompany a lower risk. Although every lender has their unique standards, most of them utilize credit scores in order to guide them in the evaluation process.

3. Collateral

Inventory, real estate, accounts receivable, equipment, and savings are all of the asset classes of a business and fall under the broad umbrella of collateral. It can help you secure a loan. Here, the lending institution is concerned only with collateral or assets that give the lender assurance that they can repossess the collateral in case the borrower defaults on the debt. Consequently, the assets can be collected or sold to generate required funds to pay the loan in the event of the borrower’s insolvency. Commercial lenders take into consideration the loan-to-value ratio which is similar to homeowners’ debts or residential loans. Collateral is especially valuable for private lenders. When you want to use a property to be considered as collateral, its quality, location, and adaptability are essential features your prospective lender will take into account. In most cases, lenders simply want the debt amount to be an amount surpassed by the borrower’s collateral.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services 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 and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

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In order for small businesses to manage and run their business expenses smoothly, it is essential to keep tabs on your cash inflows and outflows. No question about it, the significance of proper expense administration for any magnitude of business is huge. The execution of the best businesses practices is a giant factor towards the revenue, growth, and, eventually, success and achievement of the business.

Bookkeeping is an excellent way for small and medium-sized businesses to manage their business expenses. The concept of bookkeeping cannot be stressed enough, be it in any kind of occupation or any kind of management. By efficiently handling and keeping tabs on business expenses, owners can gain a multitude of advantages:

Block Unseen Sinkholes

At times, your money is lost in places it should not be. By managing your business expenses well, you will easily be able to find those unseen sinkholes.

Maximize Income

By getting rid of wasteful expenditures and making the best use of items that are considered tax deductible, business owners have a chance to achieve a noteworthy aggregate of revenue.

Generate Prospects For Growth 

For businesses owners, it can be a huge deal if they are aware of where their money is being spent. Not just that, it also makes a big difference in finding out how effectively that money is being spent. These two aspects are a big factor in the preparation and accomplishment of future growth of the business.

In order to improve your business expense tracking technique, business owners should implement the below practices in their business:

Be Certain That Business Expense Policy Is Firm, Clear, And Fair

The business expense policy of your company needs to be well-founded, fair, and unambiguous. If there are any exceptions, they should be set aside for exceptional situations. The organization should make sure their managers, employees, and clients are familiar and well-aware of the policies set in place.

When formulating a business expense policy, the one thing that should remain a priority is ease of communication. After all, you don’t want your employees to go through the company textbook every time they have a question just to understand the business expense policy. The key here is simplicity.

Keep Your Business Expense Reporting Procedures Clear And Simple

Keeping the importance of simplicity in mind, we will further elaborate with the next point. When we talk of simplicity, it has its benefits and advantages. The first point is, the simpler you keep your business process and procedures, the more your employees will be able to comply. The more simplified the procedure is, the more your employees will stick to it.

Secondly, if the procedures are complex in nature, it will increase the chances of inaccuracy in managing the business expenses. The more administrative boxes and excel spreadsheets you have that need to be entered, the more chances there will be a blunder made somewhere. These are blunders that could possibly end in forfeiture of an expense entitlement.

Finally, and most significant of all, simplicity means speed and swiftness. If the system is simpler, your clients and employees will spend less time on the business operations.

Gather Relevant And Required Information For All Business Expenses

When it is time to file tax returns, the one factor that can immediately kill the likelihood of you getting your hands on any money is non-compliant invoices.

Whenever a reclaimable expenditure is incurred, the associated invoices and receipts will guarantee you of getting your money back. This is why it is extremely important to save those invoices and receipts so that they can be accepted for a tax refund by the appropriate taxation office.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services 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 and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.