By Analytix Editorial Team
It is easy to mistake incoming cash and revenue as a sign that your business is doing well. In reality, revenue can disappear in bill payments, salaries, and other expenses, creating negative cash flow. A positive cash flow is an indication of liquidity for the business and money available for immediate use. According to a report by Smallbiz trends, 82% of businesses fail due to poor cash flow management.
One of the best ways to ensure business cash flow stays positive is to have a firm handle on collections, while judiciously managing accounts payable —the money that the business owes to others. Here are some ways in which businesses can ensure they have a handle on their cash flow.
Accounts receivable are defined as outstanding money owed to the business by customers for services already rendered. Often, services and products are given to customers and then either post-dated checks are provided to the business or a credit note is issued. According to a Forbes report, one-third of all small business owners in the US estimate their companies have more than $20,000 in outstanding revenue.
For a small business with limited financial capabilities, these outstanding funds are simply payments not made for investments in services provided to customers. This translates into money spent, but not yet recovered.
When making payments, the Forbes report says 47% of small business owners use advance payments. This means money is already transferred out before services are received by the business. One way to better manage payables is by streamlining the process using technology and accurately determining vendors who must be paid first. Combined with overdue accounts receivables, accounts payables can create a cash deficit for the business.
Small businesses, even CPA firms, are primarily focused on building a business. Thus, even as client accounting needs are met, critical accounting for the CPA business itself can fall behind. Entrusting the CPA practice’s own accounting and bookkeeping to professionals can ensure robust and reliable cash flow management.
Reviewing accounts receivable for accounts aging, and checking accounts payable for vendors requiring early payment, in addition to streamlining the invoicing process and sending payment reminders are all examples in which cash flow operations can be streamlined. Professionals bring proven business insights to help guide small and medium-sized business (SMB) cash flow management practices, from automating select operational aspects to ensuring better investment and financial management practices and decisions.
Harnessing professional accounting services
Cash flow management is central to ensuring liquidity for a business. As mentioned in this Forbes report 69% of small business owners are concerned about cash flow. For most small business owners and operators, pursuing and keeping up with business development can be difficult, given the need to multi-task. As a result, bookkeeping and accounting may suffer, sometimes despite business profits. Professional accounting can help identify challenges and customize solutions, including streamlining cash flow.