During the current challenging times, a lot of small businesses are experiencing a significant drop in revenue and are experiencing a cash crunch. Below are some tips for managing cash flow.
During uncertain times, small business owners have a greater impetus on the ability to make the right decisions with payments as they come in. Drafting up a strategy can ensure that you are able to built a small reserve that can help weather uncertain times.
A key component of building up a cash reserve is to monitor expenses diligently. As money comes into the business, there should be greater oversight on money going out. One best approach is to decide between a NEED and a WANT, which can assist in the expense approval process. Tightly controlled payment approval process will ensure that you are only releasing funds once you have deemed it to be an OPERATIONAL BUSINESS NEED, which will help in building a cash reserve to weather the times when business is in a slump. This can also help assist with fixed commitments (rent/mortgage, phone, transportation, food, etc.).
Cash flow is simply defined as “The amount of cash moving into (income) and out of (expenses) a business.” As simple as it sounds, managing cash flow requires discipline and strategy.
Reviewing your income and expenses
It might seem simple, but managing cash flow begins with keeping an eye on your accounting—and not just at tax time. By having your accounting up-to-date, it will provide you with real-time information and provide you with a clear line of sight as to what you’re bringing in and what you’re spending on; only with accurate and timely information will allow you to adjust course and plan for an expected drop in cash. This is especially relevant if your business is seasonal and you are able to forecast what months are your busy and low seasons.
One way to have timely information is through cloud accounting, which will allow you to access your information on the go through Smartphone Apps. Still Accounting has partnered with the major cloud accounting providers such as Quickbooks, Xero, Wave and Sage to ensure that our clients are able to work with the software that best suits their needs, while still being able to access their business financials anywhere through an internet connection. Cloud accounting software allows you to send invoices promptly and input expenses regularly, ensuring that your books are up-to-date.
Income Statement Review
Once you analyze your profit and loss frequently, you’ll be able do things like look for ways to cut down costs and recognize what times of the year are the slowest so you know when to you might need marketing to help with your sales. An income statement totals your income and expenses over a given amount of time, i.e. monthly, quarterly or annually. If at the end of the chosen period, you’ve spent more than you’ve made, you know if you’ll need to make changes—and where.
When you track your income and your expenses as you go, you are able to see if you are making a profit or a loss, and are able to make adjustments accordingly. By doing monthly or quarterly reviews, it also allows you to see that if you are an amazing month (or months), it’s smart to put some of that money away if you’re tempted to spend it all so that you have a cushion during leaner months.
After you understand your current financial position, this will allow you to make a decision – whether that’s working on expanding the business through sales, or cutting back on costs or both—you can make a big-picture adjustment that will provide long-term success for your business and cash flow position.
Take the Long View
Always have a long term horizon on cash management, as short-term wins can be offset by short-term losses. By having a disciplined strategy and consistency in implementing that strategy, only then can you achieve the long-term strategy of having cash reserves to able to draw upon.