Be it a small business or an MNC, cash flow management is the lifeblood of the organization. Ensuring proper cash flow through modern strategies is the key to positive financial health. Sadly, a lot of business owners and even young accounting experts struggle with smart cash flow management.
In this blog, Finsmart will share effective cash-flow management strategies using which the best can be made of your company’s working capital. Are you ready to discover the best cash-flow management strategies for 2022-23?
Top cash flow management strategies for 2022
#1 Conduct regular cash flow analysis
It is really important to know where your business stands in terms of cash flow at all times. Conducting cash flow analysis at regular intervals allows decision-makers to clear idea of their cash flow statement and see the pattern of money flow.
Regular cash flow analysis will mark out whether your business has enough income to cover monthly financial liabilities or not and tell you what are the odds and ends after all monetary obligations are settled. It will also share how much funds are tied up in debt or investments.
Follow these steps in order to prepare a cash flow analysis for business:
- Identify income sources: Tally up all income generated during a specific period of time, (say a month). After taking into account revenue from services rendered or goods sold, consider money generated from investments or assets.
- Identify business expenses: Your next step is to identify and total business expenses. Include inventory purchases, accounts payable, deferred revenue for upcoming projects or services, and other liabilities on your accounting books. Also, make certain to incorporate slumps on fixed assets as well as income tax expenses.
- Create a cash flow statement: Finally, organize all the gathered data (income sources and business expenses) into three sections – operating activities, investing activities, and financing activities to create a cash flow statement.
#2 Cut expenses
Benjamin Franklin once said, “Beware of little expenses. Even a small leak can sink a great ship.” Turns out, he was 100% right. If you find that your business outgoings are above and beyond the incomings after creating and analyzing the cash flow statement, your cash flow management strategy should focus on cutting expenses.
Making cutbacks in business is an uphill battle but cutting insignificant business expenses will help you redress the balance of scales. Start with cutting non-essential costs such as corporate perks. After that, review your overhead expenses including rent and utilities.
Identify other business expenses too and arrange them in terms of priority. See where you can cut back in order to level your cash flow scales.
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#3 Ask for cash in advance
Let’s be honest, there are a lot of pricing models out there and each one of them weighs differently on cash flow management. Some prefer to sign contracts with their clients using a time and material-based pricing model, while others use a fixed-price model. However, there are some companies whose product or service requires substantial cash or effort before delivery.
Design agencies, IT companies, PR firms, and construction companies fall into this segment. This cash flow management strategy is especially crucial for them, and the strategic tip is to ask clients for a deposit or a milestone payment.
Why? Because you need to budget your finances effectively to keep your business thriving. By requesting a deposit or milestone payment, you can ensure that your funds will be available when needed and that you will get no surprises. This can majorly help you improve the cash flow.
#4 Reevaluate your business operations
Literally, one of the most crucial cash flow management strategies to consider in 2022. There are many areas of business operations that can be reevaluated and updated for cash flow efficiency. Remember to review your cost structure over and over to find performance gaps and enactments that can be modified to increase savings. Identify cost-heavy operations that can be outsourced to save money.
That way, you can still get the job done without spending extra money on human resources, infrastructure, and more. Expenditure on shipping costs, rental equipment, and raw material stock can also be reviewed for efficiency.
#5 Take a proactive approach to invoice
Being proactive is always a good idea in business. Taking a proactive approach to invoices helps MNCs decrease the total time needed to pay the bills and save a significant amount of money. With the extra time gained by taking a proactive approach to invoice processing, business owners and CPAs can:
- Go for on-time invoice payments to ensure that deadlines aren’t missed
- Figure out which invoices should be paid immediately to reap the benefit of early-pay discounts. It’s better to pay some later to reap the benefits of an extended line of credit
- Strategize who should get paid using credit cards, and who should be given a cheque or ACH
Streamline your invoicing workflows for accuracy and speed so that invoices reach your clients in a timely manner. Coordinate with your clients to make sure that each invoice has an associating purchase order to cut back on exceptions, chargebacks, and delays. Instead of binding invoice dispersal to a certain day, send invoices out whenever you fulfill a specific target, say a certain number of projects accomplished or shipments delivered.
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#6 Use a business credit card
Another effective cash flow management strategy for business. Many savvy cardholders in 2022 wield their plastic to accumulate savings, boost their credit score, and oversee day-to-day financial activity. You can also use a business credit card as a cash flow buffer.
It will also give you more control over when you pay for your expenses, giving you the go-ahead to delay payments until you get paid yourself. A smart cash flow management tactic for modern business owners indeed!
#7 Hire AP and AR experts
Accounts Payable and Accounts Receivable are two sides of the cash flow coin and must be carried out by all mid to large-sized organizations. However, apart from being important, these tasks are also work-intensive, reiterative, and time-consuming. They can put an additional burden on your finance team, resulting in errors and delays in approval.
Hiring a team of outsourced AP and AR experts can help reduce your cash-flow burdens greatly. Using the best accounting and cash flow management strategies will help you analyze your cash flow and determine methods to get paid faster and reduce AP and AR processing costs.
Cash Flow Management Strategies: Final words
Above are the best cash flow management strategies for businesses and accounting firms interested in making an upgrade in their financial planning. These cash flow management strategies and recommendations will help effectively track the money coming into the business and make the most of it.
Smart cash-flow management also gives decision-makers a complete picture of cost vs revenue and makes certain they have enough funds to meet existing and upcoming expenses with ease.
Finsmart Solutions is helping its clients with cash flow efficiency and also simplifying AP and AR on a day-to-day basis. Our team has the expertise to operate most global accounting platforms including in-house software for accounting management.
With our time-tested process, we can help your business reduce cash flow processing costs and improve your working capital cycle. Got any queries to ask? Send them to firstname.lastname@example.org and have them answered by our AP and AR experts.
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Maanoj Shah is a finance and outsourcing expert with strong Business Strategy and Scaling-up experience. Over the last 20 years, he has incubated multiple businesses and helped build global enterprises in verticals as diversified as hospitality, technology, and healthcare.