Cash flow is essential to sustainable business; more importantly, the methods and channels used to direct, allocate and manage this precious resource play a vital role in how efficiently a company operates. The better the cash flow management system, the more easily cash can be allocated to bolster business operations and increase the businesses profitability.
Understanding the importance of cash flow management and keeping up with the cash flow management trends is fundamental to streamlining business practices and improving a company’s profitability and performance.
WHAT IS CASH FLOW?
The total amount of money being transferred into and out of a business, especially as affecting liquidity.
HOW DOES YOUR CASH FLOW IMPACT YOUR BUSINESS?
Cashflow is the lifeblood of any company. Well managed it will cause your business to flourish and poorly managed it will cause your business to decline.
1. Control and management of cash flow in business directly affects the success of any company. Business owners must monitor cash flow processes, strategically and continuously improving them to achieve the best outcomes and attain accurate forecasts for their business. Cash flow issues can seriously cripple the business ability to operate and negatively affect the overall profits of the company.
2. “A good rule of thumb is to create an emergency fund with at least enough cash to cover 2 months’ worth of business expenses to safeguard the business in the event of a seasonal dry spell or large unforeseen expense. Without this cash reserve, these things could spell disaster for your business.”
Merchant Factors explores the latest cash flow management trends and predictions that SMEs should be aware of below.
1. IMPLEMENT TECHNOLOGY TO STREAMLINE BUSINESS OPERATIONS
1.1 Make use of cloud computing – Monitor performance
Cloud-based small business financial dashboards can help a small to medium-sized enterprises monitor their cash flow and so up the profitability of the business.
Technology like financial or inventory dashboards can sync sales tracking and insights into your business’s performance with the use of the right software. Insights like key performance indicators (KPIs), cash flow, gross profit margin and inventory turnover rate can be monitored with Accounting software, whereas digital marketing software tracks the conversion rates, click-through rates and ad impressions of your marketing campaigns and website.
1.2 Deploy smart devices – Improve efficiency
One of the great things about technology is that its main function is to improve efficiency and accuracy. This means the more efficient and accurate your services. Providing employees with tablets, smartphones and laptops will go a long way to reduce time wasted on paperwork and should be a lot more accurate as a large percentage of human error is removed.
1.3 Integrated software solutions – Simplify communication and project management
The way business is conducted is changing, thanks to custom software and smart devices. Integrated software can simplify a lot of business processes both internal and external, making it easier to manage both employees and customers.
Project management software is the way to go and will help you administrate projects efficiently. There are dozens of cloud-based collaboration apps, some of which include Trello, SharePoint, Google Docs, Microsoft Teams, Samepage and Asana. With these tools, everyone in the company can share files, leave updates and keep track of the status of a project.
2. OUTSOURCING CERTAIN BUSINESS PROCESSES
Outsourcing certain business processes can be very beneficial to your company. This allows for your business to focus on what it’s good at and for less distraction. When food is your business, for example, finance may not be a strong point within your organization and therefore you may be better off outsourcing the financial aspects of your business to finance experts. This is usually more efficient and aids productivity.
- lower costs
- increased efficiency
- variable capacity
- increased focus on strategy/core competencies
- access to skills or resources
- increased flexibility to meet changing business and commercial conditions
- access to innovation, intellectual property, and thought leadership
Some of the risks of outsourcing include:
- lack of business or domain knowledge
- language and cultural barriers
- time zone differences
3. STAY ON TOP OF UNPAID INVOICES AND DEBTORS
Managing your cash flow means constant monitoring and management of your accounts receivable.
It is advisable to integrate your POS system with your accounting software. You need to be reviewing all accounts receivable, debtors and creditors weekly to maintain healthy cash flow. Overdue accounts mean that cash is tied up and it needs to be liquid for healthy cash flow.
4. EMPLOY FINTECH SOLUTIONS
- Automate Payments – Payroll automation means you save costs, achieve greater accuracy and better efficiency. Saving both time and money here is the goal.
- Electronic Invoicing – This ideally leads to fewer disputes and quicker payments on invoices due. It also ensures a full audit trail which is beneficial to business for tax and accounting purposes.
- Digital Inventory Management – Managing your inventory ensures that stock or product levels are effectively maintained, and it also ensures old or overstocked items can be removed or sold off to replenish with faster selling, more relevant items. This improves sales.
5. ALTERNATIVE FINANCING TO EASE CASH CONSTRAINTS
By using an alternative financing option like factoring, you get the funding you need when you need it. Factoring provides your company with fast and flexible access to working capital, against your accounts receivable. Factoring alleviates this pressure by providing you with the working capital you need to run your business, negotiate early settlement discounts with suppliers, grow your sales and much more.
Merchant Factors is an independent factoring company with over 31 years of experience in delivering tailored business finance solutions to businesses big and small.
For fast, flexible business finance – contact Merchant Factors today
Finance beyond the Numbers.