Tips to Use Your Accounting Software to Improve Cash Flow

Your accounting software can do more than tally debits and credits. It’s an important tool that can be used to keep track of and improve your company’s cash flow.

Cash Flow Is the Life of Your Business

Business owners know that positive cash flow is a sign of a healthy business. Cash flow means your business can pay for the materials, supplies, and resources it needs to keep running. Without positive cash flow, your company struggles to pay for necessities and cannot grow.

Why do so many small businesses, then, have cash flow issues? There are many reasons why companies struggle with cash flow. Some, such as the 7 tips below, can be addressed by smarter use of your business accounting software. Others, however, are a function of your business itself.

For example, small businesses often struggle with cash flow because:

  • Profit margins are too low. They haven’t taken the time to understand their pricing structure, compare it to competitors, and use their accounting software to track various suppliers and costs.
  • Underestimating costs. Startups are notorious for underestimating costs, but established companies can make mistakes and underestimate costs for expansion, marketing activities, or other expenses.
  • Doing too many favors for customers. Some small businesses mistake good customer service for giving away too much time. While it is important to remain accessible to your customers and provide answers to their questions, giving away too much of your time may be a drain on resources and a hidden drain on your cash flow.

Take the time now to understand the many ways in which your accounting software can be used to improve cash flow. You’ve already invested in the tools (business accounting solutions) so why not use them effectively?

7 Accounting Software Tips to Keep Cash Flow Moving

Even the most carefully managed small businesses can run into cash flow problems. However, when you are able to utilize your accounting software effectively to manage cash flow, such problems are less likely to occur.

Right now, the “black swan” event (an unforeseen negative event) of a global pandemic has hurt many businesses. Managing cash flow efficiently is always important but perhaps now, more than ever, companies need to use the tools that they have to ensure their businesses remain solvent. With sales slow for some industries and suppliers also struggling, ensuring that your business’ cash flow remains strong, stable, and positive is vital.

These seven tips will help you use your accounting software to monitor, maintain, and manage your company’s cash flow.

  1. Forecast your cash flow

A cash flow budget or forecast is the expected cash in and cash out within a set period of time. You can estimate cash flow needs for 30 days, 6 or 12 months—the period is up to you. Such estimates help you avoid shortfalls while bringing to light anticipated cash needs. Listing income and costs on a monthly basis enables you to see times when you may experience shortfalls and plan accordingly. Seasonal variations can also be accounted for, such as surges in cash during holidays or other peak times, and demands on cash outflows, such as higher heating bills in the winter. Be realistic and include every item, including ongoing expenses in your budget.

  1. Establish times to send invoices promptly

Many small business owners fail to send invoices out on a timely basis. This creates a cash flow crunch because the work has already been completed for the customer (or goods shipped) but the customer hasn’t even been billed yet, which extends the time to pay.

Establish clear payment terms with all customers and suppliers at the start of your business relationship. It doesn’t matter whether you choose the standard 30 days or extend time as long as you are both clear on the expected terms.

Your accounting system can be used to establish times to send invoices promptly. Many systems have reminders that can be set on an account or task. If your system has this feature, use it to remind yourself to send invoices promptly. The faster the invoices go out, the faster you’ll receive payment and keep the cash moving.

  1. Reconcile accounts monthly

Another area where small business owners often need help is with monthly reconciliation. Whether it’s reconciling their credit cards or bank accounts, they forget to check their accounts. Soon those monthly tasks build up from a small pile into a mountain that feels insurmountable.

During account reconciliation, you can spot mistakes that impact cash flow (and your credit). For example, reviewing your credit card bills and reconciling them in the business accounting system enables you to spot mistakes in charge or unauthorized charges. You can then investigate the charges and have the mistake fixed quickly.

Companies who don’t bother to reconcile their accounts may let mistakes like this slip through, which end up costing them money.

  1. Develop relationships with lenders

The time to develop a relationship with lenders isn’t when you need a loan. It’s now, when things are going well, that you should find and investigate potential loans. By doing so when you don’t need cash urgently, you have the time to review interest rates and loan repayment terms and choose those that are most advantageous to your business. If you wait until there’s an urgent need for cash, you’ll end up accepting undesirable terms.

Meet with your bank’s business advisor and/or small business expert and discuss loan products. Look online for other options and ask colleagues and fellow small business owners where they’ve obtained their loans. Develop a relationship with your bank, banking experts, and others who can assist you during times of cash flow crisis.

  1. Use credit wisely

Although many business owners eschew using credit for expansion, there are times when you need it. Perhaps your business is growing rapidly and you’re concerned about a lag between receiving payment for the new contract and the costs associated with fulfilling it. That’s the time to use credit such as a short-term loan. Banks may be more inclined to provide loans when they see evidence of a vital, healthy business, and with the promise of repayment virtually assured because you have a contract for payment of services. Paying such loans promptly is a wise way to use credit for business growth.

  1. Seek flexible payment terms

Use your business accounting software to review the payment terms you’ve established with your suppliers and vendors. Some may be willing to provide flexible payment terms or installments. You may be able to negotiate deals that are favorable to you and your business. It doesn’t hurt to ask.

  1. Review expenses regularly

Review expenses quarterly. Little things add up. Keep only recurring, automatic payments for things vital for your business, such as necessary office productivity software, cloud software, etc. Make it a point to manually review and approve other charges not directly related to your business’ daily needs. The old adage that “a penny saved is a penny earned” is still true, even if a penny isn’t worth as much today as it was when Benjamin Franklin wrote it!

Identify potential cash flow problems in advance by regularly updating your cash flow forecast, monitoring market conditions, keeping an eye on customers and suppliers who may be in trouble, and taking action as soon as you see a problem.

Don’t bury your head in the sand and hope an issue will go away. By keeping on top of your cash flow, you’ll be able to deal with problems quickly and efficiently. Also, if worried, talk to an accountant, investor, or business mentor.

Prepare With the Right Business Accounting Software

The right business accounting systems can make a big difference in how you monitor, manage, and maintain your company’s cash flow. Antiquated systems or lack of systems can make it challenging to understand your current cash flow situation. And, if you don’t understand it, how can you anticipate problems or address them when they arise?

Fortunately, there are many accounting solutions on the market today that address the needs of small businesses in a variety of industries. Acumatica offers a robust yet flexible system that meets the needs of small businesses. With the data from Acumatica, you’ll be able to spot cash flow problems, forecast with ease, and send invoices easily and promptly.

Mindover Software

Mindover Software is a software reseller with a broad range of accounting, ERP, finance, customer relationship management, and other software products. For more information, please contact us or call 512-990-3994.

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