To keep your new or growing business moving, cash is needed. It’s almost impossible to keep cash readily accessible. This is because there are often inventories, payments, and suppliers to manage.
Cash is king and cash flow in a business is a key pillar that supports the entire business. It’s the lifeblood of businesses, especially small businesses. A strong cash flow offers better control for business owners.
Rules for Effective Cash Flow Management
This guide discusses six commandments for managing your cash flow the right way. Below are six rules for cash flow management.
1. Establish a regular cashflow forecast
Creating a cash flow forecast is imperative. It needs to detail your expected cash inflows over the cash outflows
With a cash flow forecast, you can avoid surprises. It also gives you insight into your cash position in the future. Measure the actual cash flows against what was forecasted to easily evaluate your business’ performance.
You may use the service of an external accountant should the process of creating a cash flow forecast look daunting.
2. Train your staff and use technology (software)
Keeping your accounting records up to date is essential. You also need to equip your staff with the right training on how to use certain accounting software.
Not training your staff on how to update your business’ accounting records means it will be difficult to understand the state of your business. This leads to inaccurate cash flow. For better results, consider investing in some accounting software and train your staff when needed.
3. Optimise payment times
Using accepted procedures such as “stretching” payouts, supply-inventory timing, and Just in Time (JIT) will ensure that you do not lose money all the time. This keeps your reserves intact. It promotes growth. Every cash doesn’t have to go into envelopes of checks written off for suppliers or vendors.
4. Use technology (cash flow software)
Utilizing quality accounting software permits you to have exceptional accounting records. It also keeps your cash flows accurately. With good cashflow software, you can easily track and record key business indicators – the likes as operating margins, aging accounts receivables, as well as inventory turnover.
When you have a better understanding of these key business indicators, you will be able to manage your cash flow effectively. Get suitable accounting software for your business. An external accountant may recommend one for you.
5. Increase sales and decrease costs
One easy way to upgrade the situation of your cash flow is to improve the sales flowing into your business and reduce costs. Isn’t this desirable? And guess what, it’s easy and achievable.
However, you will require a lot of cash to get it going. Simply use a powerful sales force. Prepare systems to speed up cash collection, enhance the number and type of sales channels, and handle accounts receivables.
6. Work on cash reserves
Maintaining a cash surplus makes it easy to be nimble in business. These extra funds offer you a cushion in case of emergency or unforeseen expenses. Or if there is a brief decline in business growth.
Cash reserves help you to capitalize on possible opportunities that might emerge – such as equipment purchases, expanding inventory, increasing staff, and so on.
Conclusion
Without properly managing the cash flow of your business, its growth may be hindered. Use these six commandments for better cash flow management. They are very effective. Finally, you can try out a cashflow software to help your business improve. To learn more, click here.
