Managing Cash Flows
Today I want to begin a series on managing your business cash flows.
The dictionary definition of cash flow is fairly simple. Cash flow is "the movement of money in and out of your business." Your business brings in money through sales, financing, and returns on investments, and you spend that money on supplies and services, as well as utilities, taxes, and other expenses.
Managing these cash flows is similar to managing your household budget except on a more complicated scale. In your household, you manage expenses to allow you to live within your means. Your means being whatever income you have coming in on a regular basis. You also set aside money to save for unexpected large expenses or future purchases of things you want. You may also invest money, to grow your sources of income. You will want to use a similar process to manage the cash flows in your business.
In order to begin this process, you will want to understand and control as much as possible the cash inflows and outflows of your business. It is fairly common for small businesses to experience cash flow problems from time to time. You may have cash tied up in inventory or in accounts receivable. If you are unable to move inventory or collect accounts receivable, your ability to purchase new goods and pay your bills is restricted. While you cannot always eliminate these issues completely, there are steps you can take to minimize these problems.
The more flexible you are in offering your customers ways to pay for your goods and services, the more likely you are to collect your receivables. Does your business accept credit/debit card payments? Depending on the nature of your customer base you may also want to consider accepting payments through PayPal.
If your customers are other businesses, you may want to do credit checks through D&B or other services and assign flexible credit limits based on payment history over time. Another way to encourage timely payment of receivables owed to you, is to offer a small discount for payment within a specific time period.
Contact us at BookSmart Accounting & Finance, we are able to help you find ways to manage your Accounts Receivable. Why not give us a call today and start your business on the road to more positive cash flows.