How can Small Businesses Handle Cash Flow Efficiently?
Cash flow is the most crucial part of every business. Few surveys have pointed out that the poor cash flow has doomed some companies in spite of them being successful. Though, India stands second in owning a large number of SMEs, about 90 percent of startups fail and poor cash flow has played a vital reason for it. Whether a business is successful or struggling, maintaining positive cash flow is the key for the organization to sustain in the business world.
The cash flow issues could emerge due to several reasons such as poor sales, irregular or late payments received, unplanned expenses and more. The below mentioned key points would help the organization to ably manage the cash flow.
Understand the Cash Flow
To manage the cash flow of the company effectively, one should get a deeper understanding of the cash flow movement of the company. Thus, the team handling cash flow should get hands on the cash flow statement and forecast. The cast flow statement would give a clear view of the company's past expenses, while, the cash flow forecast would give the estimation of future expense. With this analysis, the finance team could check if the cash flow is positive or negative. Positive if the cash inflow if higher than the expenses and its opposite would indicate negative cash flow. Based on the cash flow analysis the finance could cut down the unnecessary expense and transform the cash flow into positive if needed.
Payment Follow up
Customer's payment is the major source of cash flow. Many organizations are witnessing the trouble of delayed or unpaid invoices. This condition would eventually result in negative cash flow. Thus, the organization should take the initiative to bridge the gap between invoices and payments. The companies could figure out their customer's payment mode preference and make the required arrangement on the receiving end to reduce late payments. Also, the companies should track the invoices frequently to find the outstanding invoice bills or the ones nearing outstanding dates and that could be followed-up to ensure fast payment. The organizations can use accounting software for hassle-free management of invoices.
Prioritize Cash Flow over Profit
The organizations usually tend to consider their profits as their success. But, healthy cash flow is the actual ingredient for the success of the company, and maintaining this would eventually improve the profit as well.
It is ideal for every organization to stay updated on the latest accounting tools that would ease the cash flow management to ensure the progressive growth of the organization.