• New Wave Accountants

5 Essentials to Remember When Managing Your Small Business Cash Flow

Spearheading a small business means wearing many hats, and other than drawing up unique and innovative ideas that can shake up your market, part of the critical roles you need to prioritise includes managing your cash flow.

After all, cash flow is the movement of funds into and out of business. It is a key financial indicator measuring a business's ability to generate excess cash and profit or loss. With all that being said and done, how do you exactly ensure your business maintains a positive cash flow?

Essentials to Remember When Managing Your Small Business Cash Flow

Tip #1: Always Keep Your Books Accurate and Up-to-Date

Keeping your books accurate and up-to-date is the primary thing you need to do when managing your small business cash flow. Whether you're operating a business as a sole proprietorship or a corporation, remember that you are still accountable for your business transactions, even if you hire a bookkeeper.

As a business owner, your accounting records are your financial foundation. If they're not accurate, you could easily make the wrong business decisions and end up losing out on money that's rightfully yours. To avoid making costly mistakes, do yourself a big favour by staying on top of your bookkeeping duties.

Tip #2: Always Establish a Clear and Strict Invoicing Timeline

The timeline you set for invoicing should be based on your payment terms, sales volume and seasonality. Ensure you follow it and invoice your clients as soon as your services are rendered.

You should be prepared to invoice as early as 30 days after the service is completed. Doing so provides you with time to reconcile your accounts and have your payment due on time. If you discover that your client has not paid on time, send them a reminder letter, or call them up to follow up with them.

Tip #3: Hire an Accountant to Give You Greater Confidence with Your Company's Numbers

Choosing to hire an accountant for your small business doesn't mean you're spending too much. It actually gives you added control over your financial situation and expands your knowledge base. This way, you can better concentrate on doing what you do best – running your business.

The right accountant will assure you that you're doing the right things and provide you with relevant financial advice based on their accounting expertise and sound judgment.

Tip #4: Grow Your Cash Reserve

Most business owners would tell you that keeping a healthy cash reserve is imperative to any business. The key is to have enough cash flow to sustain your business operations and ensure your company's longevity.

For example, if your company is cash-strapped, you would have a harder time paying your employees, making your regular supply purchases and paying off all your other business obligations. If your business has a healthy cash reserve, you can invest in additional training and meet your long-term goals.

Tip #5: Differentiate Between Your Cash Flow Versus Your Net Profits

Cash flow is the actual movement of money into and out of your business. You should know that cash flow is separate from net profits. Net profits are based on the amount of gains or losses your company has made.

The amount of money that flows out of your business is then considered your cash flow. If you're running a loss, and your cash flow is negative. To improve your cash flow, you'll need to take a closer look at your expenses to see where you can cut down on costs.

The Bottom Line: The Importance of Prioritizing Your Cash Flow

As an entrepreneur, you are the leader of your business. It is your duty to ensure that the decisions you make are in the best interest of your business. As such, it is also your duty to ensure that you are spending your money wisely and keeping an eye on your company’s growth.

After all, your company’s growth not only affects your personal finances but also affects your employees, your investors, and all your stakeholders. Let your passion and creativity guide you, but ensure that your business decisions are guided by practicality, sound judgement, and financial analysis.

How Can We Help You?

Running a business is often a balancing act, but we can help stabilise your strategy by offering financial mentoring services to grow your venture. New Wave Accounting handles one of the best accountants in the Gold Coast, so get in touch with us and see how our end-to-end accounting and bookkeeping expertise can help scale your business.

We understand that keeping tabs on your finances and taxes can be overwhelming, so check out our services and learn more about how we can help you today!

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