No matter what business sector you operate within, the more customers or clients you have, the more complicated your finances become. This is obvious. There’s a reason scaling businesses have to hire specialised staff to take on departmental roles… But most companies don’t operate at that level. Most companies are in the small-to-medium sweet spot where the business-critical specialist tasks don’t justify a specialised new hire. Yet, the work is still required, and SMEs don’t have expendable resources to put someone on the case.
There are a few options in this case.
- Improve internal systems to reduce the work that needs to be done
- Outsource the work on a needs basis
- Both of the above.
You can enjoy a quick turnaround in the fast-paced retail and e-commerce space. Transactions are made, and the cash reaches your account soon after. The challenge for this industry is planning the outgoings. Inventory, ordering new stock and paying the bills depends on a thorough understanding of cash flow trends.
In the services sector, lengthy payment terms and fickle clients are often the inconveniences of your smooth running financials. Inconsistent payment terms make it hard to have foresight. Lack of foresight makes it hard to pay bills (including staff) and ensure you remain liquid.
There has to come a time when business owners say: Enough is enough. Running the business is the job. Juggling financial admin should not become a full-time focus. When you reach this point, it’s time to look at your systems and support.
Although we are an outsourced service to our clients, we firmly advocate for improving systems as a first step to reducing your accounting and financial management requirements. We recommend you try the following:
1. Introduce software solutions
If your finances are becoming unmanageable, accounting software solutions can help to automate many tasks and relieve you of a reasonable workload. There are a few kinds to consider:
- Invoicing software: tools that help you to manage accounts receivable by automating invoicing, allowing e-payments and automatically following up on overdue invoices
- Payment processing software: tools that help to automatically capture your incoming payments and compile information for accurate reporting, which can better inform you of your cash flow patterns and inventory status
- Comprehensive accounting software: tools that cover all financial elements to streamline the entire incoming and outgoing process (these can be quite expensive, so it’s worth doing a cost/benefit analysis before diving in).
2. Streamline your payment terms
Retail, professional services and everyone in between should look at streamlining payment terms to get greater control over cash flow. This goes for both accounts payable and accounts receivable.
Retail and e-commerce – accounts payable:
If you receive small payments regularly, such as in retail, you will want to look at your accounts payable terms to see if there are ways to improve your oversight. For example, can you negotiate with suppliers and providers to pay your bills after 30 days rather than immediately? This longer lead time gives you more notice to plan and lets you order essential stock or services without risking your cash flow.
Professional services – accounts payable and receivable:
Those that receive large payments from clients, such as in professional services, can look at both sides: accounts payable and receivable.
It’s common for professional services providers to invoice clients and offer 14, 30 or even 60-day payment terms. All of these are fine, but it is recommended that you try to have them all the same. For example, avoid having one client pay 30 days after invoicing and another 60 days after. These inconsistencies make inconsistencies in your available funds.
The greatest challenge, however, is usually getting them to pay. With long payment terms, there is a lot of room for clients to forget. This means a lot of time you need to waste chasing those payments. Software, again, can help streamline this. Find a solution that automatically reminds clients in the days before that their invoice is due on X date or automatically notifies them as soon as the invoice is overdue. This alone can be a huge time saver.
As for accounts payable, we recommend looking at the same strategy as we mentioned above in the retail example. See if you can negotiate longer payment terms to give yourself more time to manage your finances and keep funds available.
3. Consult experts to uncover the cash flow hacks of your industry
Outside of the helpful tips that can be applied to any business, every industry has unique accounting and tax hacks that could help with cash flow. This is where your accountant can prove extremely valuable to offer recommendations on strategies that help you get the most out of your accounting practices.
4. Find a partner who can support you as you need
If you engage an accountant only at tax time, you reduce their opportunity to add the most value to your accounting and tax strategies. At one point or another, you’re going to need accounting support. When you do, we strongly recommend you look for accountants who can not only do your tax or manage your bookkeeping but also analyse your processes and establish the solutions we’ve mentioned above.
Time is precious. If you don’t have the resources to boost your accounting practices for optimal performance, work with a partner who can do this for you and then be at-the-ready to step in as needed moving forward. The MGroup provides comprehensive business accounting solutions to meet the unique needs of any business. Contact us today to discuss how we can help you streamline your processes to boost your cash flow.