A business meets the payroll and settles bills with cash, not profit. Even if a company has many orders or plenty of satisfied clients, it can still become bankrupt if it does not have adequate cash flow. Profitability does not mean solvency, and growing a business means generating enough money for output.
Cash flow is one of the most pressing concerns for a company. Although it can be challenging to maintain cash flow, you can achieve it with proper planning. For instance, you could prepare for busy months where you expect a jump in expenses. A small business accountant could help you with keeping your books updated and provide suggestions for when you need to secure a loan from your bank.
How to prepare for cash flow concerns
When seeking an infusion of cash, you need to be strategic. It won't paint a good picture of your business if you request for a short-term loan when you're stressed and need the cash right now. Instead, it's good to call your bank manager months in advance and ask for a face-to-face meeting so you can explain the situation. A meeting lets you enumerate the reasons for the upcoming cash crunch and how you plan to fund it.
When you do this, you will likely secure the funding and impress lenders because you have foresight. When this happens, it can strengthen your relationship for future financing. Aim for a professional image. Don't be someone who makes up the rules of his business as things happen.
Create a cash flow forecast
Besides knowing the best way to secure a loan, you should prepare for cash flow bottlenecks by having a forecast. When you run a business without a cash flow forecast, you'll find it difficult to account for unexpected expenses. This tool lets you anticipate increases in spending, spot problems, and try corrections to improve the cash cycle. Consult a small business accountant for help in developing a forecast.
Forecasts tell you if it's time to speak with suppliers and negotiate better terms with them. These documents also clarify and enforce your business' credit terms, letting you reduce spending, stock holding, or waste. With a forecast, you will not get caught off-guard by changes, and it enables you to build a safety net for when the cash flow dries up.
Why don't more businesses have cash flow forecasts?
Business owners are busy with operations, staff concerns, suppliers, and so many more aspects of running a company. Since these are often more urgent, these things get prioritised over planning the cash flow.
If a business owner cannot devote time to making aa forecast, he should get a consultant to go over the books. Having a fresh pair of eyes look at a business' cash flow lets you identify improvements to make. It can be difficult for a business owner to lay down the details of what he should do, even if he knows precisely when a crunch would happen.
Running a business requires knowing how to weigh and prioritise items that need action. Although cash flow forecasts are essential to keeping a business afloat, they're often not as urgent as other items in a business owner's to-do list. As such, it's best to delegate this to an accountant, or someone experienced in making projections for companies.
Ensure you have a solid plan for your business when you consult with the E-commerce Accountant. We work out of Perth, and we are an online accounting firm helping business owners and influencers maximise their cash flow strategies. Contact us today to learn more!