As a business owner, cash flow is the life of your business. Therefore, the cash flow statement is one of the most important financial statements to monitor in keeping the business running. The other essential statements are balance sheets and income statements. Losing track of a business’s cash flow is a major cause of business failure.
Before providing tips on how to keep your business cash flow in check, it’s best to understand the true concept of cash flow. More often than not, negligence is often a result of an improper understanding of the importance of cash flow to a business.
What is Cash Flow?
In every business, cash comes in as revenue and goes out as expenses. Cash flow is measured by the amount of cash that comes in and goes out of the business over a given period of time. Whenever you hear of a positive cash flow, it means more money is coming into the business (revenue) than money is leaving (expenses). The reverse is the case for a negative cash flow, which means expenses are greater than revenue.
With proper business cash flow management, you can know how much cash you’ve made and the corresponding expenses over a certain period of time. A cash flow statement can help determine a definitive financial standing of a business at any time.
How to Keep Your Business Cash Flow in Check?
It’s in the best interest of your business to have a positive cash flow at all times. A good way to achieve this is by intentionally keeping the cash flow in check. Here are some proven tips on how to effectively achieve this:
Leveraging Online Tools
The internet has provided many opportunities that many people, especially business owners, have yet to take advantage of. There are many top-rated accounting and financial tools for businesses to make use of to prepare and check financial statements.
There are quite a number of reasons why you should use these online accounting tools. First, if you’re not too knowledgeable about financial statements and matters, these tools help you avoid making mistakes and errors in managing your cash flow.
Time is often a scarce resource for many small business owners. Running and managing a business can take a toll on your mental and physical health if you’re not careful. These online tools take the stress off by helping you manage your business accounts and offering you real-time access from any device.
Some of these online accounting tools include Xero, QuickBooks, Wave, MYOB, and SmartCursors.
The financial behaviour of any business will either drive the business to bankruptcy or increase its profitability. Unfortunately, one of the often underestimated expenses in many businesses is overhead costs. If not properly checked, this can lead to a negative cash flow over time.
As a business owner, you should take a critical look at what constitutes overheads in your business. For instance, as a small and growing business, renting equipment and vehicles may make better financial sense than making outright purchases.
No matter how little you think these overheads may be, reducing them will significantly reduce the overall expense of your business. However, this should not be a one-time practice, as overheads can still creep into and upset your financial statements when not routinely checked.
Set Up Clear Payment Policies
Debts are part of the lifecycle of any business. As a business, you probably owe vendors or will receive products before paying. In the same way, customers can owe your business, with a promise to pay at a later date. Whatever the case, it’ll do your business a lot of good if simple and clear payment policies are implemented.
This way, your accounts receivable is always available to offset your accounts payable. In other words, the payment policies should be such that customers owing your business should pay quickly, so you will be able to pay your outstanding debts.
A good way to reinforce a payment policy is charging interests for defaulting or delayed payments. This ensures cash coming into the business stays above whatever expenses the business is incurring.
Manage Business Inventory
As a business that operates with inventory, how well the inventory is managed can significantly affect the business’s cash in hand. Having too much stock may seem like a good idea, but if you have stock that stays too long in storage, you’ll have an increased storage cost. If you’re unable to sell the stock quickly enough, it means you have cash tied down in storage.
With less cash coming into the business, your cash flow would be tipping towards the negative since you’ve recently incurred a huge expense on your stock. Conversely, having little stock means you’re unable to meet customer demands. This also results in less cash coming into the business.
As a business owner or manager, the onus is to find the right balance with the inventory. In addition, there has to be a continuous flow of cash into the business without an unnecessary expense (like storage cost) being incurred.
Even with all the cash flow tips, business owners can often be overwhelmed, not knowing how and where to start. Since cash flow is not a financial statement to be taken lightly, why not leave it to the accounting professionals? In today’s world of outsourced services, you can get quality services by hiring competent brains and hands while you focus on other important aspects of your business.
There are top-quality accounting professionals in Singapore that can easily help develop strategies, create plans, and ensure your business cash flow stays positive. They will work closely with your business to improve cash coming into the business and reduce expenses. They achieve this by making financial forecasts on where your business is heading and ensuring it stays on track for success. So, when in doubt, outsource it!
The goal of every business is to be successful by continuously making profits. A good way to understand the trajectory of a business is to look at its cash flow. In the business world, it’s popularly said that “Revenue is vanity, profit is sanity, and cash is reality”. Knowing how to introduce cash into your business is the surest way to keep the business alive. While these proven financial tips can help anyone improve their business cash flow, there’s absolutely nothing wrong with hiring professionals to help keep things in check.
Timcole is one of the leading company incorporation and accounting firm based in Singapore. Our wide range of professional services serves as a one-stop solution for your business, offering you the most affordable price for services conducted with the highest level of excellency.
Contact us to find out more on how we can help you with your company today.