It is something of a norm for businesses to leak cash at one point or another. Leaks in the cash flow system may be unintentionally caused by weak points in the system, poor decisions or fraud. The sad truth is that small businesses seem to be the most common victims of fraud in terms of cash leakage, especially during these trying times.
Because of the COVID-19 pandemic, especially when lockdowns were in place, it has been difficult for small businesses to sustain their normal operations. Even now that restrictions have eased up, there is a long road ahead for the recovery of the economy. This is why it is paramount for businesses of all sizes to ensure that they have effective cash flow management systems in place to prevent leakages moving forward.
Essential Tips for Effective Business Cash Control
1 - Cash Flow Forecasting
It is important to anticipate and forecast the future cash flow of the business to see how much cash that the business will have that is readily available. You can be able to compute this forecast based on the current and previous trends that were recorded.
2 - Good Management of Working Capital
Working capital refers to the funds that keep the business running smoothly. Some examples are funds for employee payroll, petty cash, and utility expenses. Managing the working capital of a business will enable it to stay open.
3 - Regular Inventory Management
If inventory control and management are not properly looked into, it can burn into the funds of a business like wildfire. This is why it is crucial to ensure that proper inventory forecasting should happen on a regular basis. The sizes of the orders placed should not be too conservative so as to make sure all needs are met, yet they should not be too large to prevent going over budget in this aspect. Also, waste should be minimized; the first-in, first-out rule should be applied to be able to make the best out of all items in the inventory list.
4 - Internal Financing
Many businesses often turn to external funding options when they need extra cash. However, business owners fail to realize that they can choose to free up some parts of their working capital to make extra funds become available. If they are able to do this, there will be no need to look for external sources for cash.
5 - Innovate How You Accept Payments
It will also pay to upgrade and improve the existing systems that the business has in place when it comes to payments. They can offer online transfer options as well as reduce the number of days payable to induce inward cash payments sooner.
In business, there are multiple channels where cash flow can enter and exit the enterprise. Keeping track of all of these points where cash comes in and leaves the business is essential in maintaining an effective cash flow system. It is important to make sure that your business is all set with all the internal processes and protocols to ensure that effective cash flow management takes place at all times.
Should you ever be in need of advice from skilled ecommerce accountants to help you improve your cash flow systems, contact The ECommerce Accountant! We offer business advice for online stores and influencers. See a difference when you contact us today!