Cash flow is the lifeblood of your business. If you do not have strong cash flow, it’s impossible for your business to meet financial obligations, especially in changing conditions, leaving your business unable to weather the storm and fighting for survival.
However, analyzing your numbers now, at the beginning of the New Year, and building processes that will make it a focus throughout the year, is the first step in building a strong cash flow.
It’s the perfect time to ask yourself how you can prioritize your cash flow and balance financial obligations better this year.
Create an Accounts Payable Plan
The first step to getting back on track with your cash flow or creating a strong financial footing is to create an accounts payable plan. Here’s what you can do to get that plan in place.
Time Out When You Pay Your Invoices
Instead of paying invoices all at once or as they come in, determine what is best for your business. Try to pay when paying makes sense for your cash flow needs.
For example, you may know you routinely have an influx of money around the 13th to the 15th of the month. You know that your bills are due right after that. Don’t pay those bills as they come in, but pay them when that money is available to you. When you wait for that influx before paying, you won’t be strapped for cash flow the rest of the month.
Review Vendor Contracts
If you have too many vendor contracts payable simultaneously, reach out to those vendors to make changes. You may be able to adjust when your invoices are due, creating a more staggered pattern that fits your business better.
It may also be worthwhile to take a closer look at your vendors in general. You may find vendors to work with that offer a better price or a more competitive service that saves you money.
Pay What’s Most Important First
When cash flow is limited for any reason, you may need to prioritize what and who you pay first. Focus on what is most important to keep the doors of your business open – your lease and employees, for example. Pay bills that are most important to the operation of your company before you pay for others.
Send Invoices Right Away and Then Follow Up
When there are times that cash flow is low, you need to be able to collect payments as quickly as possible. The sooner you send your invoices, the better at minimizing the risk that your cash flow will drop. Send your invoices out right away. You’ll have some people who pay upfront and immediately when you do. You’ll likely have some that pay over time. That helps to spread out the money coming in for the month.
It’s also a good idea to stay up to date on those invoices. If you do not receive payment immediately, set up reminders. Your invoicing tool should allow you to send follow-ups about the invoices to keep those debts fresh in the mind of your customers. Don’t let your hard-earned cash slip through the cracks when prioritizing your cash flow.
Stick to a Budget
This may be hard for some people to do initially, but creating and sticking with a budget is critical for maintaining your business’s financial health, including your cash flow. A good budget will help you strengthen your cash flow by:
- Setting expectations for your spending.
- Helping you time out your spending – a tip mentioned previously.
- Limiting your spending to only the essentials.
- Ensuring you don’t spend outside of your limits.
You also want to consider when cash is coming in and how to spend it throughout the month to limit cash flow shortages. Pay close attention to your spending and learn how to create a business budget so you can stay on track.
Check Your Cash Flow Regularly
As valuable as cash flow is to your business’s overall health, it’s critical to manage it with careful insight throughout each month and quarter. It is one of the most important metrics for managing your business.
The best way to manage your financials is to use real-time data to check your numbers monthly. This allows you to track your progress, determine if your adjusted processes are working and, if not, pinpoint where changes need to be made.
Cash flow management is a big part of your business. You don’t want to lose sight of what is happening. In the event you need to borrow money to meet financial goals, you need time to find resources. Having this type of oversight may help you do that.
Work with an Experienced Accountant
This is one area of financial management where time and attention are necessary. However, if you are like many business owners, you have so many other things on your plate that shifting your focus is a tough task in itself. We suggest turning to an experienced accountant to solve this problem.
An accountant can help you create an account payable plan and suggest invoicing tools right for your company to help you stay on top of payments and send reminders. They’ll also work with you to create a strong, detailed, budget and help you to routinely check on your cash flow balances.
Let the team at Pasquesi Partners help you prioritize your cash flow by scheduling a consultation with us today!