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    Added on 03 December 2021

    How to (Finally) Get a Grip on Small Business Cash Flow

    03 December 2021

    Cash flow problems force good companies out of business every day. You can head a high-profit business, yet if you don’t manage your cash flow, you won’t be able to pay the bills.

    What causes cash flow problems in a profitable business?

    Overspending is the most obvious cause of cash flow problems. If you’re spending more than you’re taking in, whether due to unexpected expenses or cost creep, a cash crunch is inevitable. High-growth periods also lead to trouble when a company fails to maintain working capital.

    Timing is another major contributor to cash flow problems. Seasonal cash flow, slow-paying customers, and being too generous with credit can leave you with too little cash to cover expenses.

    Other reasons cash flow suffers include poor forecasting, sales and marketing problems, and holding too much inventory. In some cases, factors outside your control bring business to a halt.

    All of these struggles boil down to a single issue: Businesses aren’t paying enough attention to cash flow.

    Entrepreneurs don’t need to be experts in every aspect of financial management, but they do need a handle on their business’s financial health. How? With determination, and the following tips courtesy of Zumvu.

    4 Steps for Better Small Business Financial Management

    1. Start using accounting software

    A surprising number of small business owners still rely on manual processes for bookkeeping, invoicing, and accounts receivable. But in today’s fast-moving business environment, working with outdated numbers just doesn’t cut it. Business owners need access to current and accurate financial data to make informed decisions.

    So, it’s important to start looking for software to streamline your financial reporting. Quickbooks does this well with advanced reporting tools that let you really dig into cash flow. Users can customize reports by date and category and even compare cash flow from different time periods to analyze cash flow trends. While you’ll still want to work with your CPA for major financial moves, access to reports in minutes empowers you to make smarter decisions day-to-day.

    2. Forecast future financial performance

    Accounting software also makes financial forecasting a lot less intimidating. Forecasting gives you the information you need to budget, manage inventory, and plan for growth.

    Forecasting is also central to cash flow planning. Cash flow forecasting takes historical sales and expense data to predict cash flow over a determined period of time. When you know what to expect, you can plan accordingly and spot potential cash flow problems before they materialize.

    3. Set favorable payment terms

    Reevaluating payment terms is an often overlooked strategy for improving cash flow. The more you can shrink the time between invoicing and getting paid, the more easily you can keep cash in your accounts. Consider shortening payment terms and post terms on every invoice.

    When customers don’t pay, you need a plan for collections. The easiest way to prompt delinquent customers to pay up is by sending automated reminders on a standard schedule. When that fails, have a process for sending non-paying customers to collections or suing in small claims court.

    4. Build cash reserves

    No matter how much you forecast, budget, and monitor, some factors are outside your control. That’s why cash reserves are a must. Yet before the coronavirus pandemic, only 14 percent of small businesses had the cash to sustain normal operations through revenue loss.

    The pandemic taught us all a lesson about the importance of cash reserves. How much you should set aside, however, is harder to determine. Consider the cash needs of your business and its overall liquidity to calculate your cash reserve requirements.

    4. Boost marketing

    To boost cash flow, you need to make a profit, and that requires more customers and more sales. To generate more interest in your product or services, it’s crucial for marketing to be a top priority. So don’t let this become a line item you eliminate. And no, you don’t need a marketing agency to make it happen. There are numerous online tools you can use to build your marketing strategy.

    For starters, if you need a logo refresh, you can actually do this yourself! It’s true. With a professional-grade tool like Adobe Spark’s logo maker app, a design novice can quickly and expertly churn out a custom-designed logo. You can also tap into all the digital features Zumvu offers, and automate much of your marketing needs. From appointment scheduling software to sales CRM to content marketing and more, you can build your business presence, and all from a single platform!

    Don’t let cash flow problems sink your business. The right policies, procedures, and tools make managing your business’s finances seamless so you keep cash in the bank and your company on the right trajectory.

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