Improve your cash flow management

Cash flow is the lifeblood of any company. Use the expertise of an outsourced CFO or virtual accountant to help keep your cash flowing in the right direction.

Every entrepreneur knows that lack of liquidity is often the biggest hurdle faced by a startup. Without cash and a solid cash flow, your business cannot function properly and you have no resilience and maneuverability should anything go wrong. Even if you have managed to survive the initial input costs of setting up your business, and you’ve reached profitability, you can still run into issues when it comes to short-term cash flow.  If you can’t cover monthly overheads like payroll and operating expenses, then you’ve got a problem on your hands. 

It is therefore critical that you have a good sense of your cash flow. You as owner, or your CFO, should be able to analyze when and how your cash comes in, and how it is then channeled. If you do not have a permanent CFO on staff, consider contracting with a virtual CFO to assist at this point. 

In the meantime, here are a few quick and easy ways to improve your liquidity and cash flow in the short term. 

  • Get the cash in fast
    Make sure that clients pay as quickly as possible. Automated accounting software can be very helpful with sending out reminders to clients when payments are past due. This should reduce outstanding debt and improve your cash reserves.
  • Keep a watchful eye on expenses
    Any business needs to keep an eye on operating expenses, especially if sales are low. Inaccurate cost estimates or unnecessary expenditures can quickly lead to a sudden cash shortage.It is therefore important that your financial team knows exactly what your costs and expenses are in order to manage cash-flow effectively.
  • Maintain some cash reserves
    Cash reserves are critical to ensuring sustainability—they can help you get through unforeseen emergencies, or enable you to take advantage of an unexpected investment or growth opportunity. At the very least, you should have enough cash saved to deal with one additional month’s operating expenses. However, don’t keep too much cash in reserve – it’s got to earn its keep! If you have excess cash, get investment advice and make that money work for you.
  • Re-examine your assets
    This could be anything from an empty room to an unused laptop. Selling or renting out assets that are just taking up space can help improve your cash flow. Waste not want not, that’s always a good motto for any start-up.

You will have to put in some time and effort and make changes in your business processes in order to accelerate your cash conversion cycle. Using regular accounting practices like tracking, forecasting, and reviewing your cash flow statements will help you get the most accurate view of where your business stands and which areas you could improve. If you don’t have enough in-house expertise to do this yourself, consider making use of a virtual accountant or financial consultant.

Careful management of cash flows and attention to liquidity will see your business through any crisis. Contact OCFO, we have the experts and the tools to help you analyse your cash flow situation, and plan for future liquidity.

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