Cash flow management may be even more critical to your business success than you think. Here are helpful tips on how to improve your cash standing in 2018, even if you hate managing your books.
Nearly every business in the world, large or small, is never more than a few weeks away from failure. It may sound alarmist, but just think about it: If your pipeline ran dry tomorrow, how long would your business last before it succumbed to thirst?
That’s why cash flow management is one of the most important factors in business success. Cash flow planning is especially critical for small businesses who often lack the resources of their larger counterparts, such as dedicated finance teams, legacy systems and set procedures and protocols.
Heath Stewart, Director of accounting firm ECOVIS Clark Jacobs says most small businesses start to fall behind due to lapses in invoicing and in chasing payments.
He says, however, that getting your finances on track could be easier than it seems.
“It’s true that business is harder today than it was 10 years ago, but the degree of automation is better than ever. If you’ve got good systems in place, collecting payments and issuing reminders is simple.”
“The problem is that many small business owners aren’t taking the time to invest and learn,” added Stewart.
Businesses that don’t take advantage of new cloud solutions and automation tools, such as accounting software like Xero, Quickbooks and MYOB, leave themselves even more vulnerable to cash flow problems, especially when customers pay late. According to a 2017 report from the Australian Small Business and Family Enterprise Ombudsman, half of Australian SMBs were paid late on more than 40 percent of their invoices. Almost one in two businesses were owned more than $20,000 and a staggering one in four businesses were owed more than $50,000.
Stewart says these conditions can place an enormous strain on small business owners but those who automate their internal reporting and set up solid accounting systems are more likely to survive.
And while he says it is rare to find a business owner who loves to do their own bookkeeping, it is one of the most important parts of your business, second only to serving your customers.
“Business owners should always know their cash position and automating your systems makes that easier than ever.”
Here are 7 cash flow management tips for how small businesses can get their finances on track early in 2018.
1. Keep accurate time logs
Business owners should track how they spend their time to look for opportunities to improve productivity as well as weak spots, such as accounting or keeping inventory organised.
“If it is taking your three or four hours every week to do you books, you might want to consider employing a bookkeeper to help. Time spent on tasks you don’t enjoy is time wasted not doing what you love. If you hate it, outsource it and free yourself to focus on doing what you do best.”
2. Let technology work for you
Stewart believes businesses that take a bit of time to invest in business technology will reap the rewards.
“It’s not just about cloud-based solutions. There are even fabulous smartphone apps, like Receipt Bank, which allow you to quickly capture and organise information simply by snapping a photo of your receipt.”
The app, and others like it, integrates with popular accounting software to make the cash flow management process even more seamless.
3. Automate the basics
Automating simple processes, such as the sending of invoices and payment reminders ensures that an important part of your business won’t slip through the cracks.
“If you are invoicing and chasing payments regularly, you are much more likely to have your customers pay you on time. Automating these parts of your business makes it so you don’t even have to think about it.”
4. Don’t forget the power of paper
With all of the benefits offered by new digital solutions, Stewart says there is still good reason to continue sending out paper invoices or payment reminders in addition to electronic ones, especially if you find yourself constantly chasing.
“Some people question why I recommend to continue with paper send outs. But the more reminders your customers or suppliers receive, the more likely they are to pay.”
5. Remember: Invoices don’t age well
Stewart points out that a common mistake businesses make is ‘ageing’ their unpaid invoices. This involves listing them in “30 day buckets’’ depending on how long the invoice has been overdue. While it may help you get started on tackling long overdue invoices, Stewart argues, continuing to do this may only delay payments further.
“An invoice is either current or overdue, so you want to be sure to chase all of your overdue payments, regardless of how long they’ve ‘aged’. Print the due date on your first invoice, as per your agreed terms, then chase where needed.”
6. Ask for payment
Asking for payment can feel uncomfortable, especially if you know your customers well or are just starting out. According to Stewart, however, business owners need to snap out of this mindset quickly if they’re going to survive.
“You should never be frightened about asking your customers to pay their bill. You are proud of the services or products you’ve delivered and deserve to be paid. Get on the phone and ask.”
7. Ask for advice
Similarly, Stewart admits that many business owners are reticent about seeing an accountant or bookkeeper because they’re worried about getting stuck with a large bill for a short consultation. He says, however, this isn’t the case for most firms.
“You should never be afraid to ask for a bit of advice, or help if you need it. Most accountants will happily offer you a free consultation. If you’re unsure about something or things aren’t going well, it is much better to trust your gut and speak with someone.”
Business owners need a clear picture of what’s going on in order to make good decisions and stay on top of their cash flow management. Unfortunately, many are operating without accurate, up-to-date information. Getting your systems and data current is the best way to protect your business from disruption and position it to push ahead of the pack.
How automated is your business and do you agree with the tips? If so, at what stage did you adopt new technology solutions and why? We would love to hear your tips and picks for tools that have made a difference in improving your small business cash flow management.