Improve a company’s cash flow and financial management

Finances are the cornerstone of any business. Managing them effectively can help you make the most of available resources, meet your commitments to your stakeholders, gain a competitive advantage, and create financial stability in your business.

Financial management involves planning, organizing, and tracking your finances, and it can get quite tricky for new business owners. You can either entrust this work to a fractional financial director or use our strategies to effectively manage your company’s cash flow yourself. Here are some ways a business owner or manager can improve the financial management of the business:

1. Make a business plan

A business plan helps you identify your clear business goals for the coming years and the resources needed to achieve them. If you do one, you will be able to anticipate expenses, income and research, and arrange the sources through which you will finance your business activity.

2. Access your financial situation

Regular monitoring of your financial situation is crucial for the growth of your business. Check your bank balance daily, create a record of your sales and keep track of stock levels. This will help you assess where your business is and compare it to previous months to track growth and progress against predefined goals. We recommend that you create a statement of financial position each year to keep a check on the value and profitability of your business.

3. Limit the duration of the credit

Most cash flow problems arise in businesses due to late payments from credit customers. Clarify your credit terms from day one with your customers can help you avoid problems associated with an extended credit period. It is important that you issue timely invoices to these customers and incorporate a computerized credit management system that can automatically track credit sales. We also recommend that you provide discounts for early payments to increase your cash flow.

4. Cover your regular expenses

Most cash flow problems arise due to regular costs, such as paying salaries. It is essential to monitor these overhead costs and find the exact figure to help you cover these costs. Keeping these funds aside will ensure that you have enough cash to cover basic expenses and that cash flow issues do not hamper business operations.

5. Keep accounting records up to date

A solid accounting and record keeping system is a need for every business as it helps you keep track of expenses and creditors. Keeping accounting records also makes it easier to file taxes and helps provide data sets for securing external funding through loans and start-up funding for your business.

6. Tax deadlines

Your business may face financial problems due to fines and interest incurred due to late tax payments. These fines are unnecessary expenses and can be easily avoided. You should follow tax deadlines and change tax laws relevant to your industry to avoid lengthy legal proceedings or unnecessary costs. You should keep accurate records to save time and have the documentation ready when filing your taxes.

7. Control overhead

Your expenses can undermine the financial health of your business. You can easily reduce your overhead costs by saving energy and using existing equipment more efficiently. Tracking the average utility costs at your workplace, including heating, lighting, office equipment, and air conditioning, can help you identify overuse and reduce some of these costs.

You can eliminate the cost of salaries and reduce expenses by introducing automation into your workplace. Automating manual tasks through specialized software can help cut down on menial labor and reduce the hours of work for your existing employees, thereby reducing the expenses you have to pay as wages.

8. Stock control

Maintaining an optimal inventory level is essential for every business in its financial management journey. If a company has a higher level of inventory than is needed to be stored in the warehouse, its capital is essentially tied to the excess inventory. This can lead to damaged inventory if a business deals in perishable items.

Holding excess inventory will also increase warehousing costs and ultimately increase your overhead. Taking control of your inventory levels can help you avoid these additional costs and free up capital for other business operations.

Endnote

Financial problems can make or break a business. Around 82% of small businesses fail due to cash flow problems. To counteract such problems, every business should have a defined finance department or entrust its financial management to expert finance managers to maintain its financial health and create financial stability in its business.

If you can’t afford to hire a professional, you should track your daily expenses to avoid cash shortages, keep accounting records, and monitor inventory control. Meeting your tax deadlines and minimizing costs can also help ensure the financial stability of your business over the long term.