In order to stay on top of your cash flow situation it is vital that you have access to up-to-date information and accurate financial statements whenever and wherever you need to reference them. The complex calculations should already be done on your behalf, so you can spend your time analyzing them and making sure that you can handle your business forecast without increasing your debt. Every business owner needs to know what is going on with their business and the influx of cash that they will require in order to handle their forecasted growth.
The first thing you need to do to analyze your needs is create and review your cash flow statement. A cash flow statement is a summary of the money coming in and going out for your business over a specific period of time. You should prepare the report on a regular basis, covering at least 12 months and updating it every month. Any basic business software will have a cash-flow statement function, so either you can do it yourself, or hire an accountant or a book-keeper that can do it for you. There are also companies online who will offer software programs that can do it for you at a fraction of the cost. The bonus is by using an online resource you will be able to review the information anywhere you have access to the internet and the information will always be current.
This cash flow statement will show you where you could have difficulties and how you can plan your cash flow accordingly to avoid them. Money is constantly going in and out of your business and it is crucial that you always have enough to cover your expenses without accumulating any additional debt. The only way to do it is to stay on top of every receivable and payable.
The next step is trying to collect payment for any outstanding debts as quickly as possible. They always say the squeaking wheel gets the grease, so maybe a timely reminder notice will be all it takes for their payable clerk to write your business the next check. You can contact your customers directly or use an automated reminder system which won’t sound as desperate. Using a standard well-written notice will also look more professional, so your clients don’t feel like their debt is being centered out.
The third step is to negotiate longer payment terms with your vendors, so you have more working capital available. Most companies will accept the terms in order to maintain your business and loyalty. If you consistently pay your invoices on time and have established a good working relationship, there shouldn’t be any issue convincing them to agree to better terms.
Accumulating excessive debt or getting behind on vendor payments can quickly destroy your business. That is why staying on top of your cash flow is so essential to the success and growth of your company. Businesses need to regularly review their cash flow statements, so they know exactly what they have coming in and when it will arrive, as well as their outstanding expenses.