Cash is King - 4 Tips to Manage Cash flow
Every business starts with a goal to grow. Business growth will be different for different business basis the goal. A newly established business (start-up) may focus on the building the revenue base while an established business will focus more on a statistical approach to scale-up the sales or expansion of business units. Whatever may be the focus of the business, one of the key things which aids in the business growth is “Cash Flow’.
It is extremely important for businesses to monitor the cash flow since it is the lifeblood of the business and if not managed efficiently, it will be the major reason for the failure of business due to insufficient funds.
Here are the 4 quick tips to manage your cash flow efficiently.
1. Credit Management (Outstanding Management) is Key
Accounts receivables are one of the key sources of cash inflow, any inefficiency in managing accounts receivables will impact your business in several ways and potentially hamper the growth of the business. The longer an invoice sits as bills receivable, will lead to cash flow issues and at some point, it may turn into bad debt.
You need to have a system in place which helps you in faster realisation of sale into cash and track the bills which have crossed the due date and assists in follow-up with the customers. Automating the credit management using accounting software will help in ease of managing accounts receivables, easy to track the pending sales invoices, real-time status of receivables and ageing of bills to track the invoices which are pending from a long time.
2. Cash Flow Projection
Analysing the historical pattern of cash inflow and outflow gives some insights about the changes in cash position between the two periods but what is required to manage it efficiently is the cash flow projection statement. A cash flow projection considers various instance of anticipated inflow and outflow and accordingly projects the net balance available for a given period.
Thus, the cash flow projection statement enables a business to make better financial decisions as it provides information about the anticipated cash flowing in and out of the business. Using accounting software will help to forecast the company’s cash situation and enables you to decide on the future investment and expenditures.
3. Cash flow Planning
Cash flow planning is critical business growth and it should be part of the overall business plan. Every business, at a given point in time, will have a short term and long-term business expenses. Cashflow planning helps you to create enough cash flow cushion to meet the planned expenses or investment. As a result, it helps in mitigating the risk of insufficient cash which will impact the continuity of the business.
Using accounting software will help in providing the required data points such as monthly Income and expenses, cash inflow and outflow, etc. which are key for planning.
4. Optimizing Cost
Optimizing the cash outflow will also play a key role in managing the cash flow efficiently. Keeping track of your spending even on little expenses will help you to identify the expenses which can be cut down. Prior identification of spending, budgeting and tracking the actual is the best way to optimize the cost. The activity of setting a budget, tracking the actuals and identifying deviations against the planned can be easily managed using accounting software.
We all know cash is the lifeblood of business and only a stable, reliable cash flow can truly exhibit the success of the business and seed further growth. A different process of the business like bills receivables, payables, Expenses etc. will impact the outcome of the cash flow. Thus, arriving at decisions considering the different process will be hercules task. Using accounting software which helps you to manage your books of accounts and provides on-time trend analysis will help you to take better financial decisions.
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