Without a doubt, Covid-19 was the curveball of 2020. There was no industry spared; businesses took a hit while some bore the full brunt. As the pandemic comes to a full year and companies continue to adjust to the New Normal, three classic key takeaways remain, regardless of the scenario. Here are the top 3 cash flow management best practices that have stood the test of time which both accountants and SMEs can adopt for their clients and businesses.
1-Cash Flow Projections
No matter the size of the company, a cash flow forecast is an essential tool. Projected monthly expenses, regular credit policy reviews, and highlighting customers who consistently delayed payments, cash flow projections can better predict spending patterns and business trends, enabling one to identify when there may be a need for increased capital.
To prepare cash flow projections, first list down assumptions based on business plans, economical and seasonal trends relevant to your business. Next, estimate sales income by reviewing ongoing contracts and revenue income. One should also list down estimated cash inflows and outflows by examining what the company spends on, including rent, salary, and software tools. All information should be consolidated to analyse for trends and patterns, with graphs and accounting systems.
2- Diversify financing sources
By doing so, business owners can reduce the risk of being over-reliant on a single source of funding. They can also find more flexible, possibly cheaper sources of funding.
As a rule of thumb, the best time to borrow money is when you don’t need it. This allows you to present a strong financial position showing lenders that you can repay the loan and places you in an advantageous position to seek out the best cost-effective loan which will suit your business.
3- Streamline and Simplify Accounting Processes
Time equates to money. Automating invoice management and accounting processes saves costs, time and improves financial accuracy. Research by Xero, an accounting software provider, shows that accounting firms can save around 215 hours of serving SMEs with automation systems.
Through task management solutions and standard workflows, digital invoices can be processed on time. Gone are the days of tracking expenditure on Excel spreadsheets. Cloud-based software allows users to access financial data in real-time, so businesses grasp cash positions promptly.
Good Cash Flow Management is Essential
By adopting best cash management practices, SMEs can enjoy sufficient funds and experience efficient cash flow systems. This can help businesses better overcome the unforeseen challenges ahead and sustain business growth with caution and prudence.