Cash Flow – Where did all my money go?

My daughter asked me that question just recently after completing her personal taxes.  We’ve all had a similar thought – your business is making money, at least you think it is, yet there is no surplus cash.   Each month you need to figure out how to pay the bills.  It can be worrying and frustrating.

The simple answer is that it all comes down to cash flow.  It is a fairly easy concept to explain and understand but putting best practices into place can prove challenging.

We know that by managing vendor payments and improving collections this will have a positive effect on cash flow.  We also know that practicing inventory management and avoiding unnecessary prepayments will keep more money in the bank. But then we come up against timing and business fluctuations that make it more difficult to forecast how much money you will have left.  To combat this uncertainty, the best practice is to start with a budget.  This will provide critical information on when you expect your cash to flow in and out of your business.

Then:

• Ensure data entry is up to date.
• Reconcile your Bank and Credit Card statements.
• Review your Balance Sheet for anomalies – the Balance Sheet can be a wonderful place to park problems and then forget about them !

A number of years ago we took on a non-profit organization that had very significant cash flow problems.  One of the major issues was revenue not being recognized when services were rendered which lead to an unreliable accounts receivable balance.  Without knowing what was outstanding a collection effort was never made.  Secondly, amounts were left languishing in Balance Sheet accounts when they should have been expensed.  With the implementation of procedures and some diligent clean up this client has been in a positive cash flow position for a number of years now.  It is such a relief when this happens – now you can focus on growing your business and building your client relationships.

There are many ways to improve cash flow.

4  Easy Ways - Start today.

1. Invoice quickly and accurately. Make sure that your entire team have the technology and knowledge to invoice your product or service daily.
2. Make it easy for your customers to pay you quickly. Invest in technology that provides electronic payment options to your customers.  The convenience of online payments are known to reduce collection time in half.  Usually within 11 days.
3. Establish good relationships with Vendors and then ask for better payment terms.
4. Analyse every expense and then determine whether you can reduce or eliminate. Late fees, credit card processing fees, bank charges, communication costs all need to be reviewed and negotiated regularly.

Poor cash flow seriously impedes your ability to grow your business and results in missed opportunities.  Catalyst Business Services helps small business clients manage their cash flow every day.  Contact us if you think we can assist you too !