If you’re a small business owner, you’re always going to be on the lookout for ways to improve your cash flow. Typically, cash flow is defined as money coming in to the business or going out. In either case, cash flows have the power to affect liquidity – something every smart business owner eyes cautiously. More money coming in is always a good thing, especially if you can accomplish this without increasing your overhead or the scope of your operations.
Cash flow is one of the most significant components for success in a small or mid-sized business. Some businesses get anxious to expand their business operations before they have their cash flow systems stabilized (more coming in than going out). This almost always results in difficulties or bankruptcy for the business.
Finding ways to improve cash flow from existing assets, prior to gaining new assets, is vitally important to sustainable growth and longevity. One thing that any small business can do to assess cash flow is to take stock of what they already have. Take a good, hard look at your current assets and liabilities, and make sure that they’re working for you. A good example is in inventory. Do you have too much cash tied up in products that only sell from time to time? If you have a lot of existing inventory that hasn’t turned over, that equals potential cash flow that’s just sitting in storage. Older inventory may need to be discarded so that a loss can be reported for taxes. You may need to refrain from ordering in new inventory when you already have plenty on hand. Also, reducing your standing orders with suppliers can free up cash that would otherwise be flowing out.
Checking the interest rates on your liabilities can also be a good starting point (a penny saved is a penny earned!). Some liabilities have higher interest rates, while others have lower interest rates or no interest associated with them at all. Liabilities with higher interest rates should obviously be the first priority to pay down and clear out, while liabilities with little or no interest can actually be beneficial. If you owe a vendor, but have a 90-day window in which to pay without penalty, it may be best to wait until the payment is due. This keeps money on the books, and gives you flexibility.
Keeping a close eye on your accounts will come in handy. Keeping tabs on accounts payable will let you know if you’re paying off liabilities before you need to, or paying off liabilities in the wrong order. Meanwhile, watching accounts receivables ensures that your customers are paying you in a timely manner, and adhering to the agreed-upon terms in their transactions. Otherwise, you’re essentially extending your customers interest-free loans. Being owed money that doesn’t materialize in a timely fashion isn’t going to improve your cash flow, so you need to turn those receivables into hard cash by being more aggressive with your monthly collections from accounts that have outstanding balances.
A small business owner has a lot to keep track of, and keeping up with accounting practices isn’t always the first on the list. Unfortunately, not doing it can cost you a lot in potential cash flow. That’s where Financial Optics comes in. We provide cloud-based accounting and advisory services for small businesses. We know that you can’t always afford the time to implement your own in-house best practices accounting systems, and we’re here to help take that burden off you, so you can focus on running your business. By using our service our customers actually improve control over the cash flow and profitability. Our focus is always on helping our small business customers manage and improve their cash flow.
Financial Optics serves business owners and entrepreneurs with remote web and cloud-based finance applications. Let our professional accountants run your daily, weekly, or monthly bookkeeping and accounting, so you can run your business. Contact us by phone at (913) 649-1040 or click here to visit our Contact page.