As a business owner, one of the most important things to keep track of is your cash flow. This is the money coming in and going out of your business, and having a handle on it can help ensure that you have the funds you need to operate and grow. This blog post will provide tips for getting on top of your business cash flow in 2023.
What is Cashflow?
Cash flow is a vital component of financial management in a business and refers to the inflow and outflow of cash. It provides an insight into the availability of liquid funds, which are essential for a company's day-to-day operations, paying bills, and financing growth. The inflow of cash can come from various sources like sales, investments, financing activities, or grants, while the outflow of cash can be in the form of expenses like payroll, rent, taxes, expenses and loan payments.
A positive cash flow indicates that the business has more cash inflows than outflows, while a negative cashflow implies that the business is spending more than it's earning. Monitoring cash flow helps business owners to make informed decisions, such as determining the best time to invest in growth opportunities or when to reduce expenses to maintain financial stability. Additionally, it also helps in forecasting future cash requirements, allowing a business to plan ahead and avoid potential cash flow problems.
It is important to note that cash flow is different from profit, which measures the success of a business over a given period of time by taking into account all of its income and expenses. While a business may be profitable, it may still face a cash flow crisis if it is not able to convert its profits into liquid assets quickly enough.
Why is Cashflow important to a growing business?
Cash flow is critical to the success and growth of a business, as it is the lifeblood that keeps a company running. A business with positive cash flow has the financial stability and resources to invest in growth opportunities, hire new employees, expand into new markets, or develop new products. On the other hand, negative cash flow can hinder a business's ability to grow and put it at risk of financial difficulties, such as bankruptcy or insolvency.
For small businesses and startups, managing cash flow can be a challenge, as expenses tend to increase rapidly as the business grows, while revenues may take longer to catch up. This is why it's essential to have a clear understanding of cash flow and to monitor it regularly. By doing so, business owners can identify areas where they need to increase revenue or reduce expenses to maintain a healthy cash flow.
In addition to financing growth, cash flow management is also important for budgeting and decision-making. A business that has a handle on its cash flow can accurately predict its financial future and make informed decisions about investments, borrowing, and spending. This helps to ensure that the business has enough cash on hand to meet its obligations, pay its bills, and invest in growth.
Moreover, a positive cash flow also provides a cushion during economic downturns, helping businesses to weather difficult financial times and emerge stronger. In conclusion, cash flow is an essential aspect of business management and plays a crucial role in the growth and success of a company. It is therefore important for business owners to prioritize monitoring and managing their cash flow regularly.
8 Ways to Get On Top of Your Businesses Cashflow
Monitor Your Cash Flow Regularly
First and foremost, it's essential to monitor your cash flow regularly. This means keeping track of your income and expenses and making sure that you have enough money coming in to cover what's going out. You can do this manually by keeping track of your financial records, however, a simpler way is to use modern cloud accounting technology, like NetSuite to help automate the process of cash flow reporting.
Proactively Managing Your Income and Expenses
One of the best ways to improve your cash flow is to increase your income. This can be done by selling more products or services, increasing your prices, or finding new sources of income. You can also improve your cash flow by reducing your expenses. This could mean cutting unnecessary costs, negotiating better deals with suppliers, or finding ways to be more efficient in your operations. A system like NetSuite can also help you track your spending trends, so you can quickly spot areas where you could be saving money.
Optimising Accounts Receivable
Another key to managing your cash flow is to make sure you have a good handle on your accounts receivable. This is the money that your customers owe you for goods or services that you've provided. By keeping track of your accounts receivable and following up with customers who are late on payments, you can help ensure that you get paid on time and improve your cash flow. A good ERP system like NetSuite can help to automate this process by emailing reminders and overdue invoice notices for you, minimising the amount of work requirement to keep on top of your accounts receivable.
Streamlining Accounts Payable
In addition to managing your accounts receivable, it's also important to manage your accounts payable. This is the money that you owe to your suppliers and other creditors. By paying your bills on time and negotiating payment terms that work for your business, you can help improve your cash flow and avoid any potential financial issues. Having a system like NetSuite helps identify opportunities for taking up early payment discounts and ensuring your bills are paid on time to avoid late payment fees.
Planning for the Unknown
Finally, it's a good idea to have a plan in place for dealing with unexpected expenses or drops in income. This could include having a cash reserve, taking out a loan, or finding other sources of funding to help tide you over until your cash flow improves.
How can a business increase its cashflow?
There are several ways to increase a business's cash flow. Here are some strategies to consider:
Improve Invoicing and Payment Processes
Ensure that invoices are sent out promptly and accurately, and that payment terms are clear. Consider offering discounts for early payments or accepting multiple payment methods to make it easier for customers to pay.
Reduce Expenses Where Possible
Identify areas where expenses can be reduced, such as renegotiating supplier contracts, reducing unnecessary spending, or finding more cost-effective ways to run the business. It's also a good idea to look into any software subscriptions your business is paying fore. Identifying applications that are no longer used, or could be replaced by your ERP can significantly reduce monthly IT costs.
Work on Maximising Sales
Consider implementing marketing strategies to increase sales, such as offering promotions, expanding product or service offerings, or exploring new markets. These marketing strategies could be aimed at either marketing products to existing clients, or attracting entirely new prospects that haven't purchased from your business before.
Tighten Credit Policies
If you offer credit to customers, review your credit policies and ensure that you're extending credit only to customers who are likely to pay on time. Tightening your credit policies can help reduce the risk of late payments and bad debts.
Improve Inventory Management
Review your inventory management processes and look for ways to reduce excess inventory or streamline ordering and delivery processes. This can help you free up cash that is tied up in inventory. A good ERP system like NetSuite offers the ability to automate demand planning and purchase order creation, ensure that your inventory levels are optimised and that you are only ordering stock in line with your customer demand.
Negotiate Payment Terms with Suppliers
Ask your suppliers if they are willing to extend payment terms or offer discounts for early payment. Many suppliers will happily consider working with you to find an arrangement that is mutually beneficial to both you and them. If you have a good relationship with your suppliers, simply asking them for more flexible terms may be enough to secure better payment options.
Focus on Customer Retention
Maintaining current customers is often more cost-efficient than obtaining new ones. Focusing on customer loyalty can help you earn a steady stream of income and improve your financial health. In other words, investing in satisfied clients pays off!
Offer payment plans
Make your high-cost products and services more accessible by offering customers flexible payment plans. Not only will this help boost sales, but it can also positively influence your business's cash flow!
Critical Cashflow Health Checklist
Critical Things to Check
|Check how much money is owed to the business and identify any overdue payments. Ensure that invoices are sent promptly and payment terms are clear, and consider following up with customers who have outstanding balances.|
|Review the business's outstanding bills and prioritize payments based on their due dates and importance. Negotiate payment terms with suppliers if possible.|
|Review inventory levels and identify slow-moving or excess inventory. Determine the optimal inventory levels for the business and work to reduce excess inventory through sales or other means.|
|Evaluate the business's pricing strategy and ensure that prices are competitive in the market while still allowing for profitability. Consider adjusting prices or offering discounts to boost sales.|
|Review the business's expenses and identify areas where costs can be reduced or eliminated. Look for ways to streamline operations and reduce overhead costs.|
|Consider different financing options to improve cash flow, such as business loans or lines of credit. Evaluate the costs and terms of each option to choose the best fit for the business.|
|Establish clear payment policies and credit terms to minimize the risk of late payments or bad debt. Consider offering discounts for early payment or implementing penalties for late payments.|
|Implement a cash management plan to ensure that cash is being used effectively and efficiently. Monitor cash flow regularly and make adjustments as needed.|
|Identify opportunities to increase revenue, such as expanding the product or service offerings, targeting new markets, or developing new sales channels.|
|Work with a tax professional to identify tax-saving strategies and ensure compliance with tax laws. Keep accurate records and file taxes on time to avoid penalties and interest charges.|
Managing your business cash flow is crucial for the success of your business. By regularly monitoring your income and expenses, increasing your income, reducing your expenses, managing your accounts receivable and payable, and having a plan in place for unexpected expenses, you can get on top of your cash flow and set your business up for success in 2023 and beyond.
About Cash Flow Plus for NetSuite
Cashflow Plus by PKF Digital is a NetSuite Native SuiteApp designed to help streamline and optimise cash flow management and forecasting.
Cashflow plus draws upon live system data, including open invoices and open credit memos in NetSuite's accounts receivable module as well as open bills, open expense reports and open bill credits in the accounts payable module. The application will then calculate the expected payments for each day, week or month based on the custom due dates you set up. This allows you to take into account different payment terms for customers and suppliers and include one-off and recurring payments.
You can also view the real-time cash implications of delayed debtor receipts or supplier payments. This allows you to make informed decisions about when to pay your bills and collect customer payments.
Interested in Learning More About Cash Flow Management in NetSuite?
PKF Digital can help you with all aspects of cash flow management in NetSuite. Contact us today to learn more about how Cashflow Plus can help you get the most out of your ERP system and take control of your business cash flow. We’ll be happy to provide an assessment of your current setup and offer advice on how to optimise it. With our expertise in NetSuite and cash flow management, you can trust us to help you make the best decisions for your business.
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