Here’s a statistic that will shock you: A massive 82 percent of small businesses fail because of poor cash flow management. Not bad management decisions. Or lack of interest from the public. But cash flow — something that should be simple, right? What gives?
The truth is, most businesses struggle with cash flow. They overspend. They don’t track their outgoings and expenses. Don’t make the same mistakes. Here are four tips you need to know to properly manage cash flow in your small business.
1. Improve Your Company’s Bookkeeping
Bookkeeping is a chore, and there are probably hundreds of other things that you would rather spend your time doing. Around half of all business owners said bookkeeping was their least favorite task, according to one study.
Still, optimizing your bookkeeping processes will make it easier to manage cash flow. You can improve tax compliance, track your expenses, and simplify payroll. Make sure your accounting details are up to date so you can view business performance at a glance.
2. Communicate With Clients
Overdue payments from customers and clients can have a dramatic impact on cash flow. Twenty percent of business owners have had to take a pay cut because of late payments, while 26 percent have had to increase their bank overdraft.
Make sure your clients adhere to your payment policies by implementing automated invoicing. The latest software will send clients payment reminders and even pass overdue invoices on to debt collectors.
3. Build a Cash Reserve
Having a cash buffer will safeguard you against any unexpected costs in the future. Temporary closures, natural disasters, personal emergencies — all of these could affect your cash flow.
Talk to your bank about setting up an overdraft or apply for finance. Remember, choose a lender that offers a financial product with low interest rates.
4. Use a Professional
Don’t be afraid to ask for help if you need it. A certified bookkeeper or accountant can help you streamline cash flow.
Alternatively, using accounting software like Xero will facilitate your cash flow management strategy. This program forecasts cash flow and keeps your financial statements in one place.
Follow the four cash flow tips above and optimize your financial management strategy. Staying on top of bookkeeping, chasing clients for payment, building a cash reserve, and using accounting software like Xero can improve your company’s chances of success.