Without effective cash flow management there is no way of knowing if your business has sufficient funds to cover expenses and obligations. And this puts your business in a precarious position. There are various expenses that need to be paid on a nearly daily basis. From rent and utilities, through to employees, suppliers, and other incidentals. Not forgetting about the need to reinvest in the business.
Effective cash flow management can help you increase profitability, confidently take on new growth opportunities, and allow for better decision making. But not managing your business’s cash flow is always going to see you struggling to pay suppliers and employees, and to meet all your financial obligations. Increasing the risk of you making reckless decisions. Whether you are starting a new business, or just looking for a better way to manage your business’s cash flow, there are great tools available to make this task easier.
Top Tools for Managing Cash Flow
When it comes to tools for managing cash flow, there are several options you can consider. There’s the traditional, but largely manual, spreadsheet option. But you can also use specialist budgeting and forecasting tools or invoicing and payment processing tools. However, regardless of the size of your business, a proper accounting software package is often the best tool. Why? Simply because it combines cash flow management with the rest of your financial management, while also automating many elements. Ensuring you always have accurate and up-to-date information. And good accounting software will include:
- Expense Tracking: Tracking expenses in real-time allows you to easily check cash outflows. Through this, you are in a better position to identify areas where you can reduce costs. And rather than just showing you what you have already paid, it should show you upcoming expenses. This would include recurring monthly expenses, along with supplier invoices that haven’t been settled yet. Meaning that you can always tell if there are sufficient funds to cover all your obligations and allowing you to make informed decisions about future investments.
- Invoicing: Accounting software allows you to automatically generate an invoice as each order is processed, and immediately send it electronically to each client. Less risk of human error on a manually completed invoice, and less risk of a printed invoice being misplaced. If your clients are promptly receiving invoices that are correct, there is a greater chance of you receiving payment promptly. Significantly improving your cash flow. Not forgetting that accounting software can be set up to automatically generate reminders for unpaid invoices. Making it easy for your business to stay on top of accounts receivable.
- Cash Flow Forecasting: With all your financial management information in one place, it is easier to analyse historical data and identify trends. Enabling you to forecast cash flow. This not only allows you to plan for the future, but it can also help you identify potential cash flow problems. And having a better perspective of your business’s finances means you can also make decisions that help your business avoid cash shortages.
- Bank Reconciliation: Still manually reconciling bank transactions to your financial records? How often do you put this off for a few days or weeks? How often do you make a mistake and have to waste time looking for it? Good accounting software can be linked to your business bank account, automatically matching and reconciling transactions. Contributing to the accuracy and freshness of all your financial records, not just cash flow.
- Financial Reporting: There should be no shortage of the financial reports your accounting software can produce automatically or on-demand. Giving you immediate access to information regarding income, expenses, cash flow, profitability, and more. And with this information in hand, you can confidently make business decisions that help improve cash flow and that stability of your business.
Tips for Managing Cash Flow in Your Business
There are other steps you can take and habits you can foster that, in addition to accounting software will make cash flow management better.
Maintain Accurate and Timely Records
Accurate and up-to-date financial records are crucial to effective cash flow management. Whether this means income and expense tracking, bank statement reconciliation, or management of debtors. But with accounting software automating most of this, it is infinitely easier to maintain.
Track Your Cash Flow Regularly
This means tracking cash flowing in and out, analysing trends, and identifying potential cash flow problems. The best way to avoid problems is by identifying them in advance, allowing you sufficient time to take corrective action.
Monitor Expenses and Manage Costs
You can’t control costs if you aren’t monitoring and managing expenses. Negotiating terms and discounts with suppliers is a good way to control costs. But it isn’t the only way to reduce costs.
Plan for Seasonal Fluctuations
Are you busier is summer than in winter? Do many of your clients close for one or two weeks in December? Many businesses see fluctuations in cash flow at certain times of the year. By planning for this, you can adjust expenses to prevent any negative impact on your cash flow during these periods.
Manage Debt and Credit
Not managing your receivables and payables is going to affect your cash flow and cash flow forecasting. But this doesn’t only mean following up with your debtors. It also means not taking on too much debt yourself.
Your business success depends on managing cash flow. And the best tool for managing cash flow is accounting software. But not just any accounting software. It is essential that it includes features that contribute to better cash flow management, without including too many features you don’t need. Speak to us to learn if Tencia accounting ERP software or Arrow Financials is the right solution for your business. Or join us for our next online product demonstration of Tencia.
