Developing good cash flow management habits is crucial to the success of any business – whether it’s a start-up, established small business (SME) or big business.
Cash management must be a top priority for small business owners. You’ll find yourself in deep water if you have insufficient cash flow. This is a business risk you want to avoid.
Here’s our top small business accounting tips to help businesses start to manage their cash flow for success.
Rule 1: Never be too busy to invoice
Running a small business from day-to-day can be time consuming and it’s easy to let paperwork (whether it’s physical or digital) pile up. But if you’re not invoicing on time, you’re not getting paid on time, or generating the revenue to support your business goals.
Tip: Use an invoicing software that triggers an invoice to be sent when a product or service is delivered and sends a reminder before the due date if needed. An alert can also be programmed to tell you when someone doesn’t pay on time.
Rule 2: Always have a cash reserve
Having a cash reserve is a must when you’re running a SME business. At any moment, an unexpected personal, local, or global crisis could send your small business into a tailspin. So, having a cash reserve to help protect your small business could be vital to its survival. Part of managing your cash flow is making sure you’re covered in case of an emergency. Therefore make sure you save those extra dollars and don’t touch your business savings account unless you absolutely need to.
Tip: If you hit a rough patch with your cash flow, consider applying for a small business loan. You can use your cash reserve to pay it back later if necessary, but if you use up your reserve and your cash flow situation looks bad, getting a business loan down the track could be harder.
Rule 3: Keep your bookkeeping meticulous, no matter what
Having immaculate accounting records can keep you out of trouble and make it easy to resolve issues if questions are ever raised about your cash management. If bookkeeping isn’t your thing, use accounting software and/or hire out the tricky bits, but don’t let your record-keeping slide.
Tip: Remember that if you use a business credit card to pay for anything, it doesn’t actually impact your books until you pay the credit card bill. Don’t make the mistake of double-debiting your books!
Rule 4: Be nice to your customers, but not too nice
Being too lenient with your customers can lead to putting yourself in an unnecessary cash crunch. Carrying a balance for a customer weakens your cash flow, so make sure you send them an invoice, follow up and follow up again until you get paid. Australia makes payment terms part of contract law, so the only one preventing you from getting paid is you, if you aren’t sending out invoices promptly.
Tip: You don’t have to be mean, but you can’t afford to be a pushover. Track your accounts receivable turnover and have a plan in place for aggressive pursuit of payments owed if necessary.
Rule 5: Don’t mix business and personal finances
If you invest your own money in starting or running your small business, make sure you only invest what you can afford. Your small business may succeed or fail, but protecting your personal finances should always take priority.
Tip: Have a completely separate business banking savings account and business debit card, or small business credit card, for your business. This will keep your business transactions separate from your own money and will help you track how your business cash flow is doing.
Contact us to find out more about how BOQ Business can support your small business.