Small Business Bookkeeping Habits That Can Improve Cash Flow
Looking for ways to solve cash flow issues? Sometimes, late payments, low sales and internal expenses can use up your company’s available assets and/or lead to negative cash flow. Although it might feel like an uphill battle, there are a few ways to improve a company’s financial reserves and prevent issues in the future. Read on to learn about seven bookkeeping habits that can help increase your small business’s cash flow.
1. Keep a Close Eye on Your Books
Managing a small business’s bookkeeping is arguably one of the most important jobs in the company. Whether you assume this role yourself or assign it to an employee, aim to always stay on top of your business’s finances. Though it’s not a complete list of responsibilities, this includes maintaining up-to-date sales records, planning and tracking all expenses, reporting and fine-tuning based on your business needs.
While it might seem like an obvious step, some bookkeeping systems, like cash-based accounting, do not track cash flow automatically. If your business uses the cash-based system, you can use this free template to monitor your company’s cash flow.
2. Keep Your Finances Organized
A well-designed, organized financial system can help you stay on top of your business’s books. Rather than allow bookkeeping tasks to backlog, take care of them immediately, or assign a reliable employee to manage the finances. If you’re just starting out, it may benefit your business to consult with a financial professional to help set up your books, create a proper chart of accounts and/or review the basics of small business bookkeeping.
3. Consider Automatic Billing
Constantly creating and following up on customer invoices, particularly for repeat billing and returning customers, can eat up a lot of your time and lead to a backlog of reporting. Instead of a manual invoice and follow-up system, try using bookkeeping and/or billing software that does the work for you, like Wave Invoicing or FreshBooks.
4. Perform Financial Audits
While an internal financial audit may sound intimidating, regularly evaluating your financial performance on a quarterly or annual basis can help you identify ways to save money, accurately track performance and prevent fiscal issues down the line. Thorough audits can also provide an extra layer of oversight on your bottom line. Read this guide for more information and help on audit procedures for your small business.
5. Incentivize Early Payment
Late and missing customer payments can have a significant impact on a small business’s cash flow. If it’s possible for your establishment, consider offering a small discount, coupon or other favor to encourage customers to pay early. You can also sell gift cards or gift certificates for use at a later date to help increase cash flow.
6. Run Discounts and Sales
While cost adjustments may not technically be a bookkeeping habit, your small business’s pricing structure can have a big impact on its finances. People may be psychologically more willing to convert if they feel like they’re getting a good deal. According to a recent study published by RetailMeNot, roughly two-thirds of consumers made a purchase they weren’t planning on because they found some sort of coupon or discount. You can also incentivize customers to make additional purchases with product bundles or add-on bonuses.
7. Prepare Your Business for the Future
Stay vigilant of your small business’s fluctuating financial needs as you track and manage cash flow. If you expect a shortage in the coming days, weeks or months, aim to prepare well in advance. Rather than wait until funds are low, you can secure some sort of funding, such as a business line of credit, to use whenever you need additional funds to run your company.
Additionally, as your small business grows, your financial needs will also likely increase. If your business’s accounting system becomes too time-consuming or complicated, it may help to consult with a professional. You can also hire an in-house bookkeeper, controller or accountant for ongoing assistance.
The information in this article is provided for educational and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. The information in this article is not intended to be and does not constitute financial, legal or any other advice. The information in this article is general in nature and is not specific to you the user or anyone else.