- May 5, 2021
- Posted by: vmayo
- Categories: Accounting Services, Cash Flow
Understanding the difference between assets and cash flow is critical to business survival. Working with the outsourced accounting department allows company executives to analyze and improve cash flow to secure the future of the organization.
Cash is Life
The value of a company is not necessarily how strong it is financially. Recent events show how multi-billion dollar corporations can also face cash flow problems.
Industry leaders default on debt because their money is tied up in non-liquid assets to improve cash flow.
A strong cash flow allows a company to operate. This allows the organization to not only pay current expenses, but also respond to market changes. Sudden costs rise or, as has happened recently, a decline in revenue can destroy a company without improving cash flow.
Now more than ever, for a business to remain viable it will have to improve its cash budget. Organizations working with virtual accounting departments have access to the necessary information and expertise to free up the necessary resources.
- Consumers are buying less and revenue declines are occurring in almost every industry. One of the most immediate ways to maintain profitability during falling revenues is to find ways to cut costs.
- In a slight decline, reducing luxury spending or occasional costs is an effective strategy but today’s businesses need to be more aggressive in improving cash flow.
- Executive officers are working with the outsourced accounting department to analyze planned expenses and find ways to save money over the long term to improve cash flow.
- Companies are negotiating with vendors to make new deals because those vendors will offer a lower price than losing an attractive customer. Costs of rent, utilities or office supplies can be cut to improve profitability.
- Shrinking inventory is another way to save money. While organizations still want to keep enough stock to satisfy customers, inventory can also be reduced if customer traffic is low.
- Some business owners are cutting prices, hoping to attract new customers. However in many cases the deduction only reduces cash flow. Other owners are trying a radical strategy of raising prices.
- Small price increases often have little effect on sales volume but can significantly improve profits. Instead of cutting prices, improve customer traffic by spending more time marketing.
- Affordable promotional campaigns can focus on new segments of the consumer market, improving cash flow and bringing in additional business.
- Other companies are using this as an opportunity to introduce new products or services to appeal to a wider segment of the population. Not a single strategy works for every business.
- This is why it is so important for a modern company to work closely with an outsourced accounting department. Only managers with a clear vision of the company’s financial condition can make effective decisions about the future of the organization with an improvement in the cash flow strategy.
Here are some Strategies to improve cash flow:-
#1 Send the correct invoice
Sales and invoices are the lifespan of a small business. You cannot be paid if you do not send the invoice. Its as simple as that.
Make sure you stay on top of your customers’ invoices. The sooner you send the invoice, the faster the cash will come. If your current invoicing process is tedious, consider switching to a cloud-based accounting app with an attractive, easy to create invoice. Software like QuickBooks Online and Joho Books both provide great invoicing capabilities that can help you speed up your invoicing process and increase your cash flow.
#2 Get customers to pay invoices on time
Another key to increasing your cash flow is getting your customers to pay their invoices on time. We know that this is easier than working, but there are plenty of practical strategies to increase the chances of getting paid faster.
#3 Increase Prices
If your cash flow is poor, then it may be time to consider raising prices for your products or services. ask yourself:
- What are my contestants charging?
- Has the price of equipment or inventory gone up?
- How much manpower does my inventory assembly or services require?
- Are my prices for the time spent making my product?
- Are my prices too low? Are my products cheap or valuable?
- You want to strike a balance between keeping your prices competitive and compensating for the hard work of you and your employees. At the end of the day, you want to make a sale, but you also want to make a profit. If your prices are too low, you can sell yourself short. In some cases, lower prices may also make your company less qualified.
#4 Expand Sales Market
Another way to increase positive cash flow is to churn out new sources of income. Get the Dream Team together, sit down with some coffee, and consider new ways to expand your sales market. Here are some new sales possibilities to get ideas rolling:
Add New Services or Products
Think about the current goods or services that you provide and consider whether there are other items or services that you think would be a good addition to your business. Consider alternative ways to earn income, as well as out of the box.
Perhaps your coffee shop can start offering homemade lemonade for the summer, or perhaps your event planning service can add cleaning service to maximize on the business. Your office may be able to rent its large outdoor space for parties and events at weekends when it is not in use. Be creative about new ways your business can generate income, which in turn will increase cash flow.
Create a new marketing strategy
If the products you offer already exist, perhaps your marketing can be expanded. Think of new ways to get the word out about your business. Consider if there is any other group that could benefit from your business offering. Bringing in more customers is a great way to bring in more cash flow.
Keeping your loyal customers
Another great way to expand your market is to make customers happy. Encourage loyal customers by offering rebates or implementing rewards programs, like stamp cards for multiple purchases. In addition, consider implementing a referral program. This way you can encourage your loyal customers to grow your business for you through word of mouth.