How to Track and Manage Cash Flow for the tough time in the economy:
Monitoring and comprehending cash flow is paramount for any form of business. Cash flow is regarded as a critical component of the success of a business. In the absence of cash, profits are useless. In most cases, a business recorded on the book of accounts as profitable has resulted into bankruptcy due to a mismatch of inflow and outflow cash. If spending is greater than earnings, there is a need for a change to avoid a business from collapsing. As the old saying state, “cash is king”, it is also true to state that cash flow is the source of life for a business. For positive cash flow to be achieved a lot of work needs to be done. There is a necessity to analyse and manage cash flow in a more effective way that controls the movement of cash coming in and going out of business. What is required is a positive cash flow that is required to realise profits. Money is required to settle expenses and pay suppliers. The sale of goods is what generates profits. In case there are no money to buy goods to ensure continuity, profits would not be realized (Rigby 2013).In this respect, the following are ways of structuring a business to have positive cash flow for the growth of business and increase profits in tough economic times.
Carry out credit ratings for clients
When facing uncertain economic times, clients may post a great risk to your business; hence there is a need to credit-check your customers to ascertain their ability to pay back your money. Always carry out research on your suppliers and customers for a better understanding of their creditworthiness. As a general rule, it is advisable to communicate with customers the soonest (Rosemary 2019).
Create an easy mode of payment
According to an article by Rosemary (2019), she quoted Caroline Plumb that making it easier for customers to settle their payments will ensure that there is a regular flow of cash in the business. Invoice quickly your customers and add a payment method to avoid hitches in transactions. Most business people wait for too long before following up on payments. Nowadays, software are available that assist in tracking invoices which business can adopt to assist in the management of cash
Always follow-up on late payments
If you are finding difficulty requesting your customers to make their payments promptly, it is advisable to have strong internal process that ensures default in payments is avoided. If necessary outsource to a professional debt tracker (Rosemary 2019).
Don’t make early payment
During uncertain times, it is advisable not to pay your suppliers as soon as they deliver goods. This is especially if you have problematic clients who don’t make prompt payments for goods they took from you. Settle your payments when it is due and not when you receive invoices from your suppliers (Rosemary 2019).
Face facts
According to Michelle Shuman, a business coach as quoted by Rosemary (2019), when faced with uncertain economic times, it very easy not to evaluate your bank statement, an act that is like hiding from the truth and worsening the situation. Michelle Shuman confesses that it is advisable to set aside time on a weekly basis to evaluate your book of accounts and follow up on outstanding invoices to ensure that cash is available in the business at all times.
Minimize reliance on external debt to minimise reliance on external funding it is advisable for a business to focus on enhancing the productivity of existing employees and assets and improvement of cash flow. These actions have the possibility of freeing up the money required for making purchases or investments with no reason to seek external funding (“CPA Australia”).
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List of reference
CPA Australia. Tips for small business in uncertain times. Retrieved online: https://www.cpaaustralia.com.au/professional-resources/business-management/small-business/tips-for-small-business-in-uncertain-times
Rigby, D., 2013. Management tools survey 2013: usage up as companies strive to make headway in tough times. Strategy & Leadership.
Rosemary Bigmore. 2019. How to manage cash flow in uncertain times. Retrieved online: https://www.telegraph.co.uk/business/global-payments/how-to-manage-cash-flow/