- On June 26, 2020
What is ‘cash flow’? As the name implies, it is the flow of your business’ money. It takes a look at where the money is coming from as well as where it is going out to. For instance, sales can be a source of funds, while investments can be where your money goes to.
Another term to know is cash flow management, which is the act of tracking exactly where the money goes. While this might sound like a waste of time and effort, it is crucial in any business environment. After all, with knowledge on exactly how the money is made and spent, you can make much more informed decisions that will not only grow your business but will also keep you safe from any financial instability.
With that said, if you feel like your business’ cash flow is not as plentiful as you would like it to be even with the above management efforts, here are a few tips to help you improve:
1. Strategize your payments
When you know the simple tips and tricks to strategize your payments, you can significantly improve your cash flow. For instance, by being able to hold onto your invoices for as long as possible (and still paying on time), you can make extra money through interest. While this amount is little, it will compound over time.
To be successful with any of these tips, you will need to set up a payment policy that works for you, without putting suppliers in the back seat. For instance, you can set up a 90-day pay window (or whatever it is you negotiate with the supplier) to hold onto the cash for longer, which will help you accrue more interest on available balances.
2. Set up a forecast
If you have not set up a forecast this far yet, you should do so immediately. Estimating how much money is going in and out of your business can give you an idea of how your company will look like in the near future. This also means that your estimates must be as accurate as possible. To do this, your business will need to be running for a while. In other words, you will need to use the historical data that you have racked up so far to project your cash flow.
Why is setting up a forecast important? Well, other than being able to know how your company will look, you will be able to prepare for the future. This means that in seasons of highs, you can make the most money possible. On the other hand, when everything is on a low, you can pad your business up with more savings.
While we have only shared two tips with you, these will still significantly impact your cash flow positively. So, if you have not already, creating a payment policy to help you hold onto money for more extended periods will help you to set up forecasts that will adequately utilize your cash. While the increase in cash flow might seem menial at first, it will grow into a large amount later down the line. In other words, think long-term! After all, your business is meant to last for years to come, not a short few months.
Do you need help from business accountants in Melbourne for improving your cash flow? Think Wiser can help you! From professional bookkeeping services to business structuring, we can help you get the results that you need.