Lack of adequate cash flow is the primary reason for the failure of the majority of small and medium businesses around the world. While regular bookkeeping and accounting functions can be multitasked, cash flow optimization needs dedicated accounting expertise.
It entails a careful analysis of vulnerabilities in various accounting functions and prompt optimizations with a specific goal in mind. At Outsourced Bookkeeping, we perform regular audits and suggest optimization to our clients to help them achieve their cash flow goals. In this blog, we identify and list our top 5 tips that have resulted in positive cash flow for the majority of our clients. Read on to know:
5 Tips for Healthy Cash Flow Management:
- Invoice swiftly to reduce DSO (Day Sales Outstanding): The most common mistake small and medium businesses make is to wait until a pre-set amount of time to send an invoice which delays the payment. The faster you send an invoice more time it gives you vendor to send the payment and quicker the payment ball rolls. However we urge business to master the art of sending easy-to-read accurate and quick invoices.
- Having an accounting software will helps a lot in this regard by giving you access to quick invoice templates.
- Simplify and ease the payment methods, offer discounts for early payments. Every step you take to increase the payment speed contributes to more cash at hand and a healthy cash flow.
Accounting software accelerates this invoicing by avoiding errors and cutting down the risks that manual bookkeeping manifest. If you cannot invest in accounting automation software you can also seek help from remote accounting firms that offer outsourced accounting and booking services.
- Give a little stretch to your payables: While you actively see early payments, spreading your outgoing money in a manner that works for your cash flow goals can be a useful strategy too. This avoids a sudden outflow of cash and gives you some room to plan out your finances. So considering taking as long as possible to clear your payments without pushing the payment deadlines and incurring late charges. Always ensure you don’t strain your vendor relationships and damage your credit in the process. For clients who wish to stretch their payable, our accounting experts at Outsourced Bookkeeping suggest two common ways:
- Negotiate new due dates with vendors based on your convenience.
- Consider revaluating your payment agreements after diligently zeroing on your payment and due date requirements.
- Stay on top of your inventory: When businesses don’t have tabs on the inventory status they either overstock which traps the money in the books or understock that can disrupt supply demand curve. Analysing your inventory also take a hard look at surplus inventory that is not selling well and need to be discarded to release the cash struck in inventory. So consider choosing an inventory management system that is integrated into accounting software to give you a real time view of inventory at hand and measure to be taken.
- Reassess operating expenses: While delaying the payables is good strategy to control cash flow, reducing the expenses is even better way to improve cash at hand. So reassess the cost structure and identify the operation aspects that can be further improved to cut the costs. Shipping costs, middle men, extra resources and staff can be evaluated. Outsources to freelancers or third part service providers while staying true to your core product or service offering is viable option for most businesses. For example, even businesses and CPA firms outsource bookkeeping and accounting services to cut costs while improve their scope of services.
- Create a cash flow forecasting model: The most underrated optimization any business can make to enhance their cash flow is to build an accurate cash flow projection that can help you identify the problems before they originate.
Cash flow forecasting is the process of estimating the cash outflow and cash inflow for a business over a period of time. Accurate cash projection predicts that cash position and gives you a peek into potential cash shortages to help you take necessary measures for course correction efficiently.
However building an accurate cash forecast is not easy. Cash inflow, cash outflow, sales, raw materials and inventory costs, payroll and more – it needs a wealth of information and an expertise in forecasting process tailored to specific industry. In short it is a lot of work.
Outsourced Bookkeeping – Best Remote Accounting Firm for Outsourced Accounting & Bookkeeping Services
Not only the cash forecasting but any optimization that is made to improve the cash flow needs a solid accounting and bookkeeping foundation. Small business that often prioritise multitasking may not have enough resources to pull them off and this is where Outsourced Bookkeeping can help.
With team of dedicated bookkeeping and accounting experts, Outsourced Booking has been providing complete spectrum of accounting services for more than a decade now. If you are a small and medium business that is looking to outsource your accounting functions or need consultation to curb our cash flow problems, you can find us here: https://outsourcedbookeeping.com/