Cash flow is the heart and soul of the financial aspect of your business. Without it, any activity that requires the use of cash will not prosper. Business owners use cash for paying suppliers, employees and others who are serving your business. If cash flow is handled properly, you can generate an impressive return on your investment. However, this will only be possible if you are going to keep an eye on your cash flow. While there are still aspects you need to keep an eye on, your cash flow must be closely monitored because when left unchecked, it can be one of the reasons for a failed business.
How will you know where your money goes if you do not track your expenses? Money movements must be tracked for your business to survive. Make sure you track the invoices issued and paid to your clients, the invoices received and paid and the taxes withheld. Use bookkeeping software to ensure that your information is updated. Aside from making the process easier, you can also stay on track with the movement of your money.
You can avoid cash flow issues if you consider submitting a project proposal. This way, your payment conditions will be clear. You should also see to it that the invoice you send has clear payment terms. You can also increase the chances of getting your invoices paid if you use magic words: “please” and “thank you”.
If there are bad debts you need to follow up on, remind them in a friendly manner. The email should outline the details of the payment and schedule follow-ups including phone calls and email messages. Some software allows you to enable late payment reminders so you can regularly follow up on bad debts.
It is also a good habit to schedule the payment of your bills on or before the due date. This is a good practice that professional organisations should follow because it keeps your cash flow in check. Being unmindful of your payment due date can be a problem in the end if the bills start to pile up.
Cash flow forecast is important as this allows you to determine if you still have enough cash to spend. If you do not know how a cash flow forecast works, you can ask your accountant or bookkeeper to create one for you. When you forecast cash flow and compare actual figures, you will be able to identify the areas of your business that require immediate attention. If there is a discrepancy between the two, make sure you examine further so you will know if there are uncontrollable spending going on. It is easy to identify which areas of your business you should focus on if you have a cash flow forecast. Many young businesses face cash flow problems and when these are not addressed immediately, your business can take a nose dive as it will not survive considering the expenses associated with managing a business.
Peter Broberg is a bookkeeping professional with over 20 years experience in the finance sector. With more than 2 decades of experience, Peter provides payroll and bookkeeping services on a professional level. His services cater to small and medium enterprises in Cannington, Kalamunda.