When striving for financial health, creating and maintaining healthy cash-flow practices is essential. Cash flow is the lifeblood of any business, and ensuring it remains healthy is vital for success.
Below are five strategies to help you create and maintain healthy cash-flow practices:
1. Create a Cash-Flow Forecast
A cash-flow forecast is an important business tool because it enables you to anticipate changes in revenue and expenses. When you get ahead of these changes, you can make informed decisions that support your financial goals. One way to forecast cash flow is to understand historical cash flow patterns. By looking at your past cash flow statements, you see how your business ebbs and flows throughout the year.
In addition to understanding your historical cash flow, closely examine your current situation. What are your expected revenue and expenses for the coming year? They can include projected sales or income from your business operations and any expected costs such as rent, supplies, payroll, and taxes.
By forecasting your cash flow for the upcoming year, you can identify potential shortfalls or opportunities for growth and make informed decisions about allocating your resources.
2. Monitor Accounts Receivable
As a small business owner, one of your key financial responsibilities is to monitor your accounts receivable. This means keeping track of any outstanding invoices and making sure they are paid in a timely fashion. To stay on top of your accounts receivable, you can set up a system of reminders, like sending automatic reminders to customers with outstanding invoices. You can also set aside time each week to review your unpaid invoices and follow up with customers who have yet to pay.
Another critical step in managing your accounts receivable is to use accurate invoicing and accounting software such as QuickBooks. We’ll talk about this next.
3. Utilize Financial Software
Technology such as the accounting software QuickBooks can help streamline invoicing and payments, making financial management more efficient. Cloud-based accounting software can automate many invoicing tasks and tracking expenses, while mobile payments can make it easier to receive payments quickly. Utilizing these technologies can save time and money, which can be reinvested into the business.
If you are seriously considering QuickBooks accounting software, read our desktop or online article to see which version will work best for you.
4. Control Late Payers
If you have customers who consistently pay their invoices late, consider implementing a policy for dealing with them. Depending on the seriousness of the situation, you could charge interest on the outstanding balance or refuse to do further business until all due payments are received. Taking actions like these can help deter late fees and ensure you are paid on time.
Controlling late payers will ensure your cash flow stays healthy and strong.
5. Negotiate Payment Terms
Discuss payment terms with your vendors to establish terms that suit your cash-flow needs. This can be done through a payment plan, discounts, and installment payments.
Effective negotiation skills are essential when discussing payment terms, which can be done in several ways. Firstly, devise a payment plan that suits your financial situation, which helps you track your payments quickly and allows you to plan for future payments. You can negotiate terms like net-30 or net-60 days to pay your vendor.
Another effective strategy is to negotiate discounts for early payment. For instance, you may receive a 2% discount if you pay the vendor within ten days of receiving the invoice. This incentive may motivate you to pay early and keep your cash flow healthy.
Lastly, you can negotiate an installment payment plan. This involves paying for the goods or services in multiple payments instead of one lump sum, making a big difference for businesses with limited cash flow or seasonal sales.
A healthy cash flow is essential to the success of any business. Therefore, establishing and following healthy cash-flow strategies is one of the most important things you can do for your business. If you'd like more information on maximizing your small businesses’ financial health, contact us here or call (203) 641-7678.