3 Important Financial Habits for Better Cash Flow Management
Cash flow management is one of the prevailing concerns entrepreneurs face. It is still among the top reasons businesses fail, so there definitely is a cause for concern. While it might seem like a daunting task to get your cash flow under control, it is not impossible.
To help you do this, the small business accountants at New Wave Accounting have created this guide to managing the cash flow of small businesses for entrepreneurs. Not every person who goes into commerce has an accounting or business degree, but this does not mean that you have to be at a disadvantage.
Here are a few ways to improve your cash flow management:
1. Spending analysis
Your expenses are the first thing you need to analyse when rethinking your cash flow. Begin with your fixed costs, such as rent and utilities. Are you absolutely sure that any of these costs are at the lowest they can be? Are there any expenses here that can be lower? Is there anything you’re spending on that isn’t necessary for the company? These are just some of the questions you need to ask yourself as you determine how you can cut down your expenses.
2. Earlier invoicing
There is an inexplicable tendency in customers and clients to pay sooner if they are invoiced earlier. By invoicing earlier, you can claim any cash that you are owed more quickly and easily
Accounting software like Xero or Sage can also allow you to invoice online immediately when you fulfil your end of a bargain. These applications can send invoices through scheduled recurring emails as well, leaving your attention free to focus on other value-adding tasks.
2. Spread out the spending
One mistake many people make—not just in business—is to assume that paying something off in one big lump sum is always better than paying in instalments. This actually depends on a number of factors. In most cases, fluidity in terms of cash flow is far more important than being out of debt.
If your business needs an expensive piece of equipment, it is best that you spread out the spending and paying for it in instalments. If you end up committing to ongoing expenses, that leaves little space for necessary expenses like inventory. You could be dealing with a crisis if any financial emergencies occur.
3. Avoid late fees
Missing deadlines on payments isn’t just bad business practice; every instance is a financial mistake. Even though the late fees might be small, those will rack up over time. Money that you should be directing elsewhere will end up paying for irresponsibility instead.
Of course, we can’t forget that the failure to pay for services and goods from other businesses might put you in bad standing. Constantly missing loan repayment deadlines might also cause your loans to expand from the interest.
If you foresee that there will be an instance of late payment, inform the other party at once. It might be possible to negotiate on an extension or better repayment terms. Whatever the case may be, just make sure to be as polite and apologetic as possible. It’s better still if you never let it happen again!
Bad cash flow management is a known killer of small businesses. By employing good management habits like the ones listed above, you would be ensuring the longevity of your enterprise. Essentially, you would be giving it more strength to stand.
If you feel you need a small business accountant’s help managing your cash flows, don’t hesitate to contact us at New Wave Accounting a message. We have helped over 600 businesses on the Gold Coast start, grow, and scale using our accounting and bookkeeping services.