Maintaining a healthy cash flow is one of the most important things for any business. It’s a building block that makes it possible for your business to achieve meaningful growth. Efficient and effective cash flow management can be the deciding factor whether your business flourishes or perishes.
But in the face of rising inflation and economic uncertainty, cash flow can be a real issue for many SMEs.
All business owners know that managing cash is important, but creating an effective cash flow management system is much easier said than done. In this article, we’ll look at five simple tips to help you manage your cash flow better in 2023:
1. Cash Flow Forecasting
First, you should do cash flow forecasting before the end of the year. It will help you to predict how much you’ll move in and out of your business within given periods, for example, the first four months of the year. You’ll therefore be able to project your 2023 financial position, anticipate incomes and expenditures, and have an idea of how much money you’ll need for your cash flow.
Some of the things you need to pay attention to while doing a cash flow forecast are:
- Sales: Analyzing historical sales performance will give you a rough picture of how much sales you might make within certain seasons or periods. Also, keep up to date with current market trends and performance.
- Payments: Factor in when you’ll be expecting payments and keep in mind that some people might delay in remitting the payments.
- Expenses: You should also estimate how much money you’ll be paying to suppliers, employees, and other costs from your petty cash coffers.
Through proper cash flow forecasting and budgeting, you’ll be able to honour your payments as well as see early warning signs that you need financial assistance.
2. Lease Expensive Assets
Always explore opportunities to lease important assets that are expensive and might put a strain on your finances. They might deplete your capital reserves. Instead, look for opportunities to lease these assets. Examples of assets you can lease include computers, company phones, and vehicles. While you might end up paying more in the long run, you’ll have better cash flow since leases are normally paid in small installments.
3. Explore Invoice Financing Options
As we’ve mentioned, it’s important to expect delays in payment. Delayed payments are one of the key reasons why many businesses struggle with cash flow issues. You can explore invoice financing to improve your cash flow management. Invoice financing is a service that enables you to access up to 90 per cent of an invoice before the client pays it. It helps to ensure good cash flow and eliminates the need to harass clients for payment.
4. Check Your Inventory
Inventory can cause cash flow problems by tying up a lot of cash. Always strive to clear out your inventory and don’t hold on to stock out of sentimentality. Fight the “what if” feeling- what if there’s a surge in popularity for this product? What if demand shoots up next month? Be realistic and logical when evaluating your inventory. Selling your excess inventory will help to ease your cash flow.
5. Automate Cash Flow Accounting
Lastly, it’s time to upgrade from that spreadsheet you’ve been using for years to an automated cash flow management system. Accounting software such as Xero can help you to stay on top of your cash flow management. They also eliminate clerical errors that can end up being costly. What’s more, accounting software can automatically send invoices and accept payments. This not only enables you to collect your payments more quickly but also gives you a more accurate picture of your financial standing.
Find Out How Coffey & Co. Can Help Improve Your Cashflow Management
In a nutshell, appropriate bookkeeping and accounting practices will safeguard your financial position and improve your cash flow. Coffey & Co. specializes in providing Irish businesses with first-class, cost-effective accounting and bookkeeping services. We understand the constant pressure businesses face daily to stay liquid and meet their financial obligations. We can help you improve your cash flow management.