Finance is a crucial element of a business that offers a strong foundational platform when managed properly. Whether a business is in the primary struggling phase or established in a market, managing finance or cash becomes extremely important for day-to-day business transactions. A statistical survey suggests that 6 out of 10 profitable businesses might go dry if cash is not properly managed. This is where proper cash flow management needs to be done along with the other management services.
Basics of Cash Flow
Before managing cash flow, you will have to know the basics of this domain. The fund movement from and to your account should be tracked on a regular basis. It can be weekly, monthly or quarterly. The shorter the time interval the better you can keep a trace. When it is not possible for a business to do a voluminous check, this job is outsourced to a cash flow management agency. It can also be done by an in-house finance management team.
Here is the list of basics you need to know before deploying your resources for cash flow management.
Cash entering your business account is considered as positive cash flow. It can be generated from sales and accounts receivable.
It is exactly the opposite of the former term. It is depicted as the cash flowing out of your business account. It can be due to payroll, expenses, etc.
Good Cash Flow Doesn’t Represent Profit
A considerable inflow of cash does not mean that a company is earning profits. It needs to be compared with inventory, capital expenses, taxation, accounts payable, etc.
This is the point where cash inflow and cash outflow will become equal. Your business will neither make a profit nor a loss.
Best Cash Flow Management Tips
The first tip from an experienced cash flow management expert will be to measure all these basic points. From an expert’s view, you cannot control and manage what you cannot measure. Let us check the best tips followed by the leading cash flow management departments of big companies.
1. Anticipation is the Key
We all know that the future is absolutely uncertain, but our experiences help us mitigate loss also. It means that you can anticipate the future to some extent and can manage cash flow. Account records should be maintained accurately for the purpose.
On considering checking the account records, you will discover the incoming expenses, as well as the monthly cash flowing in. In a nutshell, you will be able to keep a tab on all the basic cash flow management pillars at a stretch. This is what an expert suggests you do. Anticipating large expenses and preparing for them beforehand will surely help you manage your cash flow excellently. Anticipate and track the seasonal and painful trends to stay prepared.
2. Improvement of Accounts Receivable
It is obvious that your cash inflow will make your account progress in a positive direction. Use an intelligent cash flow management platform or hire a service to find out the outstanding invoices, pending receivables, etc. You can work on those elements and encourage entities to pay quicker. Plan a reward for those who are clearing their accounts faster than usual.
On the other hand, you need to switch to digital payment methods. Relying on checks can be a hassle because it can take a lot of time to receive and clear one. Digital payment methods make it faster, easier, and error-free. There is no possibility of receiving bounced checks. In fact, you can also reduce labor and save on resources.
3. Account Payable Process Management
It is important to check on the cash outflow section for managing your cash. Even if you are continuously filling a tank with the taps open, you will not be able to estimate its capacity. This is why cash outflow management is also very important. The accounting department must keep tabs on the outflow of cash and manage accordingly.
This is where investing in smart accounting software can be very helpful. Many businesses outsource cash flow management services to ensure proper management of the accounts payable. Overlooking unpaid payments will pile up, causing stress to your financial foundation.
You can also maintain a positive relationship with vendors and get some slack in the payment process. It will also help you get some time to organize your payment process and to get control over the accounts payable section.
4. Cash Reserve for Emergency
Another prime element a company has to follow is to maintain a cash reserve for emergency purposes. Uncertain and unprecedented events can cause a massive outflow of cash causing immense financial stress. This is where maintaining a major cash reserve can be a great support for the future. It will also not put stress on your business accounts during the time of need.
An emergency cash reserve should be a long-term plan where small amounts of money should be invested on a regular basis. Go for an insurance plan for certain mishaps so that you can get financial aid at the right time. A general rule suggests maintaining a cash reserve that will enable your business to run for at least 6 months.
5. Do Not Keep Cash Idle
Idle cash will not lay eggs. Invest and use it for a good return. The thumb rule for increasing cash flow is investing idle money. Large balances eating dust in non-interest generating accounts will do nothing apart from offering financial security in the future. If you have the cash to spare, use it to roll.
Business expansion and other ventures can deliver the best outcomes when it comes to using idle cash. You can use it to reduce debts and save on interests levied. It can be used to renovate your business processes to reduce future expenses.
6. Setting Timelines
A haphazard payment system can cause chaos. It can be a daunting task to track payments and receivables at the same time. Proper cash flow management can be only done when you set a timeline for all kinds of cash inflows and outflows.
Managing these cash flow aspects in accordance with time will give you insights to make proper decisions. You will also get notifications based on the payments pending or receivables yet to be cleared. In fact, you will also be able to get your clients and customers to follow a timeline regarding payments to manage your cash flow perfectly.
7. Cash Flow is Bigger than Profit
This is probably the biggest myth that successful entrepreneurs like to bust. Making a profit will not always be the right thing, but cash flow is universal and relentless. Maintaining a proper cash flow is mandatory to understand the profit level of your business.
Analyze profit and determine shortfalls, payables, and receivables at the same time. Improperly calculated profit does not always represent the actual profit you are making. Hence, you need to consider managing cash flow from day one.
8. Cash Flow Management Monitoring
Either you can manage and monitor cash flow on a regular basis or assign the duty to someone you trust. Always choose a trusted employee to manage cash flow and to gain insights from every cycle. The employee or person should be well aware of the different aspects of finance, accounts, etc. and should be an expert in understanding financial terms and recognizing errors.
9. Forget Relying on Spreadsheets
It is time to upgrade from spreadsheets to an intelligent cash flow management platform. Do not limit your cash flow management strengths. You can hire a service to design a finance management platform where you can easily manage cash. A personalized software platform to manage cash is what you need to increase your control on cash flow.
Considering the issues related to cash flow management, it is clear that you will need an expert team or the support of an intelligent finance management software solution. Discover the best service for financial management software development. These days, leading brands offer software solutions that can be personalized based on your specific requirements.
There are excellent tools that many financial management services use to generate reports and to meet the specific requirements of a client. You can hire a service or can employ an in-house team for the purpose. It all depends on your budget, volume of work, and confidentiality. Make the right decision and manage your business finance efficiently.