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Small Businesses: A Basic Guide to Cash-flow
Cash-flow can be defined in terms of the total amount of money that is transferred out and into a business. Cash-flow can be a problematic issue, especially in the case of seasonal businesses. The tough period between invoicing and actual payment is felt by almost all small businesses. However, if careful attention is paid to the business’ cash-flow, the painful effects of this period can be minimized.
As a first step, an efficient cash-flow management implies setting cash-flow targets. By making and maintaining a prediction of your business’ cash-flow, you will be able to get a general idea of the financial outlook your business will have during at least the following 6 months. A cash-flow forecast will convince your credit controllers that you are paying proper attention to this area, and that you are assigning cash-flow responsibilities to the members of your staff.
With your cash-flow forecast settled, the next step is establishing an agreed schedule for payments. Once the payment terms are settled, it will be easier for you to know when payments will be overdue. This way, you will be able to manage cash-flow more easily and more efficiently.
Your business is also in control of one factor that directly affects cash-flow: invoicing. You have the power to decide the exact time when invoices need to be sent out. It will obviously be in your own interest to send out invoices to clients as soon as your job is done. If you delay issuing invoices, payments will obviously take more time to reach your bank account. Sending the invoice by e-mail will not only save you a lot of time, but keeping a record of the respective invoice will also be much easier.
Another important factor you can control, at least to a certain extent, is customer payments. This process should be simplified as much as possible. By putting at your clients’ disposal payment methods that take less time – such as online paying, instead of checks – you will ensure a faster and easier cash-flow.
Sometimes, direct debits might also be a useful solution. If this is not a good option for you, you can always save energy and time by making use of technology, and thus maintain your cash-flow. There is a wide variety of technology-based methods that can help you manage your business’ cash-flow. For example, a cloud accounting software is a valid option if you wish to save time and keep an accurate record of your business’ finances. Small businesses can always make use of budgeting software to gain control over cash-flow.
As you can see, the most efficient way of controlling cash-flow is paying it the necessary attention. One of the most frequent mistakes small businesses usually make is focusing too much on the profit, thus disregarding cash-flow. Just keep in mind that, if your business’ cash-flow is doing fine, profit will more than probably follow a similar pattern.
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