Businesses often experience highs and lows concerning their cash flow. However, managing their cash flow allows them to improve their financial situation successfully. This said, not all businesses will face the same challenges, although some will have more resources as a contingency for cash flow problems others may not have.
Furthermore, businesses may need more to steer them in the correct direction regarding the cash flow, and most would have a knowledgeable finance team, including a chief financial officer (CFO). These highly paid professionals will provide their expertise to the entire team so companies can make the best financial decisions.
According to Finances Online, smaller businesses may struggle and make budget forecasting mistakes that could cause ongoing issues with their cash flow. Not to mention, the smaller the company, the less likely it is to have a CFO to guide them, meaning they may need the tips for managing their business cash flow below.
Table of Contents
- Consider Applying for a Cash Loan
- Appoint a Professional Accountant
- Carefully Track Expenses and Income
- Have Business Assets Work for You
- Reduce Unnecessary Business Costs
- Consult the Bank for Credit Options
- Organize Cash Flow Paperwork
- Functionally Manage All Inventory
- Improve Customer Payment Options
- Secure Deposits or Cash Advance
1. Consider Applying for a Cash Loan
Cash investment is essential for paying wages and buying office supplies, stock, or other necessities. Should the company not have the cash available to cover these costs, it could consider applying for a cash loan.
For this purpose, merchant cash advance loans are perfect as the business can customize the amount they lend and negotiate the terms for repayment when needed. Also, these loans have short waiting periods for clearance or payment into the company account. Thus, within a few hours, the business can find the relief they need from receiving the funds.
Whether the funds go toward a specific business expense or for covering a multitude of little shortfalls, the loan will provide the cash injection needed for the company to take control of its cash flow.
2. Appoint a Professional Accountant
Appointing a professional accountant may come at a substantial cost to the company. Still, their services will prove invaluable to the company that contracts them for assistance. Because smaller companies may need to be financially capable of affording an accountant on staff, they could consult with one outside of their business.
Not only will these financial experts give sound advice, but they can also focus on the company bookkeeping to ensure nothing is overlooked. They can spot issues early on before they become significant so companies can rectify the problem and not spiral out of control with their cash flow.
Even with a finance department managing the cash flow, businesses may still benefit from working with other professionals, especially when the current team needs help finding a suitable solution for the problems.
3. Carefully Track Expenses and Income
Cash flow could be very tricky to manage if companies don’t carefully track each expense and income amount. After all, the balance between these will improve the quality of the business’s financials to the extent that they can properly manage it.
A software solution is one of the essential tools for assisting businesses in tracking their incoming or outgoing transactions. Even smaller companies will benefit from having a financial application that they can fall back on when they know they won’t manage to keep manual records. You can consider partnering with Hall Accounting, a provider of custom accounting solutions that ensure seamless integration of the recommended financial software that aligns with your company’s requirements. Fortunately, there are free software packages as well that suit smaller companies’ needs for bringing order to their finances are available.
According to Investopedia, accountants often ask business owners for a copy of their cash flow statement to assess their financial situation. However, many of these owners need help understanding these statements. Therefore, having a professional can help improve their knowledge and provide more clarity on managing their cash flow.
4. Have Business Assets Work for You
Companies could look to their assets to improve their cash flow. Some larger corporations with room to spare could rent out part of their premises, rent their equipment to others in the same industry, or even sell unwanted assets should they need to for more stability.
Although selling assets should be a last resort, companies should recognize it as an option if there is no other way for their business to recover its cash flow. Management and the CFO can draw up a list of potential assets they can utilize and make their decisions accordingly.
Startups and businesses that need more leeway in their cash flow could use rent-to-own agreements in their favor. Suppliers for office or plant machinery, furniture, and other essentials may have these options available where there is a fixed monthly amount to pay. At the end of the agreed term, the items will belong to the company paying the initial rental.
5. Reduce Unnecessary Business Costs
Most businesses have a protocol for saving costs. But there could be more adjustments to make the cash flow even more efficient. Reducing operating expenses may include the following solutions:
- Moving into a smaller office space to save on rental costs.
- Reevaluating insurance policies or plans so they fit into the company budget.
- Opting for less expensive flights and accommodation during travels.
- Examine team member costs to see any redundancies or if another person can fill the position for a lesser salary.
- Scrutinize the company taxes to see if the business could be eligible for any tax breaks, deductions, or other advantages.
In most cases, these reductions will go a long way in putting the company’s cash flow back on track, even if they could cause some to get used to after implementing them.
6. Consult the Bank for Credit Options
Applying for credit may be daunting for some, yet it may be the only option for those companies with seriously lacking cash flow. If the business has always been in good standing at the financial institution, the bank may grant them various credit options to help solve their cash flow problem.
Company credit cards are one way of keeping a good record of expenditures while having the financial freedom to pay for necessary expenses. As long as the business and its finance department keep a close eye on these credit accounts, they are effective as part of a cash flow strategy.
Unfortunately, not all companies will be eligible to receive credit assistance from the bank, especially when there isn’t any collateral to prove that the business can afford the repayments. Business owners shouldn’t become desperate and turn to private lenders with high-interest rates that could damage the company’s financial profile. Instead, consult a financial expert for other solutions to this problem.
7. Organize Cash Flow Paperwork
In addition to financial reports like the cash flow statement, businesses need a solid strategy for keeping all business-related paperwork neat and on hand when they need to sort out their cash flow. Documents like invoices, petty cash slips, credit card receipts, or invoices can help paint a picture of the financial situation of a business should something go wrong with their software system, for example.
Accountants will agree that a filing system will make a big difference in how the company handles its cash flow, as many smaller businesses will forget its value. Failing to log cash transactions into the system will affect the delicate financial balance and may leave companies at a loss.
8. Functionally Manage All Inventory
Another part of the delicate balancing act would be inventory management. Controlling the acquisition and outflow of stock for the company will determine how much cash the business will have on hand. Furthermore, some suppliers will only have cash agreements and no credit options making it more vital to manage the expenses properly.
If mounds of old stock don’t provide an income, these become losses that won’t put back the cash into the financial flow that the business was hoping to regain from its sales. Business owners should thus evaluate how much stock they have left on their premises and compare this with their sales figures to find the midway between spending too much cash.
The QuickBooks blog states that merchandise planning could be essential to ensuring a company’s resilience, especially when cash flow is less than optimal.
9. Improve Customer Payment Options
Receiving payment for services rendered or goods purchased is one of the most time-consuming tasks a finance department will have. Moreover, some clients take advantage of payment arrangements they don’t honor, leaving the company cash-strapped.
For those reasons, companies should improve the payment process for their clients by offering more choices for payment platforms or incentives motivating them to make payments on time. Platforms like PayPal, among others, have become more popular and have innovative software solutions, making receiving payments easier for companies.
10. Secure Deposits or Cash Advance
To combat non-payment from clients, some companies have accepted a deposit or cash advance for a percentage of the total amount. With this amount secured in the bank, businesses are less likely to suffer huge losses should the client fail to complete the full payment on time.
Even though it may leave some loyal customers scrambling to adjust to the new payment method, they will get used to the idea, and in the end, the company will have much fewer worries about their cash flow. Standardizing this practice makes it easy to enforce, as all new and old customers must abide by the same rules.
Proper planning and the correct execution thereof will assist businesses in managing their cash flow effectively and prevent financial problems. Although this strategy should be sufficient for most companies, others may need professional assistance to get them back on track.
Fortunately, there are various methods to implement with help from the finance department and experts like an accountant. Whether companies make the changes in-house or contract to help from outside, both options should steer them in the right direction for making better choices for their cash flow, business growth, and future financial freedom.