It is not completely clear how the expression originated, but it is clear that it applies to corporate finances, investments as well as households. Cash, or whatever crypto currency the future holds, is what makes the world go around. One of the major reasons for new businesses failing is poor cash management. It takes money to make money and there is nothing trickier when you first start out.
Starting a business, naturally leads to focusing on profit margins and the bottom line. In the early stages of a business, cash flow is a more accurate marker of your company’s success. Income statements and balance sheets often tell an incomplete story while the cash flow will be a much better indication of your company’ s overall health. Cash flow is what will keep the lights on, so it is something that deserves just as much attention, if not even more during the first couple of years in business. By keeping a close eye on your cash flow, you can then project whether your revenue will sustain your growth and if the balance sheet accurately reflects your company’s financial position and health.
So, what are a few things you can do to improve cash management?
Embrace and make use of the latest technology
With the increasing number of financial technology (Fintech) tools available, there are plenty of options to improve the efficiency of day to day accounting and other financial tasks. Automate as much of your day to day bookkeeping as possible and use cloud sites for saving files for easy access. The time saved through efficiencies will translate into improved cash flow – quicker processing of invoices as well as more accurate inventory management.
Stay on top of collecting your accounts receivables
The easiest way to convert an asset to cash is in your receivables. Prompt invoicing will start the clock on the terms. Set clear terms up front and be firm. You may want to offer early payments discounts to the clients who pay promptly. Finally, don’t be afraid to follow up with reminders until the invoices have been paid.
Don’t pay your bills too early
Negotiate the best terms possible with all vendors and then pay on time. You want to keep good relations with your vendors, but there is no need to pay early. The goal is to reduce the lag between the cash spend and the cash collection. If you also must add a process of manufacturing or assembling to the timeline, your lag will be even greater so it’s crucial to shrink the lag to as little as possible.
Get curious about where the cash goes
Take inventory of what you spend your cash on. You may find unnecessary expenses. Automatic monthly fee subscriptions are so common nowadays that it’s easy to lose track of who you are paying for what. Find a different vendor or negotiate with your current ones to lower price. This would also be a good time to evaluate the value you get for services you are paying for.
If you would like to find out more ways to improve your cash management, contact us to book a free consultation.