Sure, you want your business to succeed. A big part of that outcome involves keeping your operation running each day. To do that, you want to have a cash flow blueprint for your business. Keep reading to learn why this is important and discover helpful hints to control capital.
While cash flow may not necessarily reflect a company’s success, it is crucial to the day-to-day enterprise. Cash flow reveals the actual money moving in and out of a business — what you’re earning versus spending. And the process is a give and take.
What comes in: This is incoming cash from customers or clients purchasing your company’s goods or services. If invoicing is involved, your cash flow statement will indicate cash flow as accounts receivable.
What goes out: Outbound monies are expenditures needed to run your business, such as production costs or rent. Expenses paid in installments will show up as accounts payable.
You want to know what’s coming and going so you know when there’s cash on hand for covering expenses. A cash flow blueprint can help you stay organized and keep money moving in a balanced manner.
The best way to know what’s coming and going is to keep a record. Monitor cash flow regularly — usually monthly — to keep tabs on where your business stands. Online budgeting tools like PlanGuru or QuickBooks can help you devise a plan, balance accounts, and review statements. With up-to-date documentation, you should be able to spot any errors or deficits before they hinder your business.
While monitoring cash flow, look for ways to cut spending. Do you have recurring monthly, quarterly, or yearly costs for things you no longer access or need, like subscriptions or services? Maybe you have a lease and can adjust its terms. Keep an eye open for ways to reduce expenses or cut back to decrease the cash flowing out of your business.
On the flip side of spending, see what you can do to turn assets into cash. Do you have equipment your business no longer needs? Consider selling or renting it. Excess inventory? Convert it to currency. If you have extra room in your building, think about leasing it to another business or renting the area for storage. Any of these options can turn surplus objects or excess space into something of value.
Let’s say you need vehicles, machinery, or other equipment to run your business. Most do. But you also don’t want to lock up financial reserves in large purchases. Avoid exorbitant costs up front by leasing or renting instead of buying.
By essentially borrowing the things your business needs, you have the option to upgrade and update rather than eventually get stuck with outdated or obsolete equipment. What’s more, financing allows you to maintain a larger portion of cash on hand in favor of smaller, steady payments.
When billing customers, you want cash flowing in to actually flow in. An invoice is simply invisible money that doesn’t benefit your cash flow. So, bill customers as soon as possible to turn the invisible into something tangible. And keep things simple and consistent. Ensure your customers or clients can easily locate the amount due, due date, and payment address. Evaluate the idea of sending invoices via email to help expedite the billing process and confidence in delivery.
At BWK, we know it’s important to have a cash flow blueprint for your business. That’s why our knowledgeable accounting, tax, and consulting services professionals are here. We can answer your questions and offer strategies to help your company stay on top of cash flow management. Contact us today to learn more.