Effectively managing your cash flow isn’t just about keeping an eye on what funnels in. Keeping your business up and running is just as much about paying close attention to how much money flows out. Forecasting business growth means tracking cash flow in both directions—or you may be headed for a crash you’re not even anticipating.
Cash Flow Vs. Profits
A profitable business doesn’t always mean positive cash flows. A misconception thousands of small business owners confuse, cash flow pertains to the money entering and leaving your system. In contrast, profit refers to the money left over after covering all expenses. Both metrics provide a greater understanding of your business’ financial health and can effectively inform business decisions.
To improve your cash flow, take heed of these six holy grail tips every entrepreneur should know.
Use an Accounting Software to Track Metrics
With the right bookkeeping services and software, you can stay on top of priority metrics in real-time. By automating procedures such as matching payments and invoices, you get a more holistic view of your financial standing without having to organize incoming and outgoing payments manually.
Send Invoices Out Pronto
Don’t put a pin on your invoices—send them out immediately, and you’ll get paid quickly. If this isn’t the case, there are dedicated accountants for entrepreneurs who are more than willing to send payment reminders on your behalf. If worse comes to worst, they’ll be in charge of making phone calls to late payers and relaying the appropriate information.
Offer a Variety of Payment Options
Not every customer will prefer to pay by cash on delivery or credit card. To ensure your clients always deliver on time, offer a selection of payment methods such as mobile wallets, Apple Pay, PayPal, and the like.
Reduce Operating Costs
Take the time to review your monthly expenses. Is there room to reduce costs where they aren’t necessary? If so, consider which areas of your business can afford to make cuts without hurting your operations.
Encourage Early Payments and Discourage Late Ones
A customer won’t likely pay early “because you said so.” Instead, offer an incentive such as a cash discount or promotional code. In that same thread, communicate that you’re just as ready to punish late payments while willing to reward early ones.
If waiting on overdue payments, send out a reminder and charge a late payment fee, automatically added to the original amount. Even if it doesn’t encourage your customer to pay early, they’ll refrain from paying late.
Adjust Your Prices Accordingly
Increasing your prices is no easy decision. While there is no guarantee that it won’t mean potentially losing sales, it could also result in increased cash flow. Experiment with different prices to determine your customer base’s price elasticity.
By regularly reviewing your statement of cash flows and working with a professional bookkeeper or Accountant, you can track your business’ financial health and what needs to change. Beyond providing deep insights, you get to anticipate future growth and pinpoint areas of improvement.
With accounting services from A4E, you can focus on what truly matters—your business operations—while we take care of your cash flow, taxes, and financial strategies. Getting started is easy—simply contact us, get on board, and leave the books and taxes to us.