The experts at Forbes say it best, cash flow is the lifeblood of any business. It is essential for paying bills and maintaining positive relationships with suppliers and customers alike. Properly managing your expenses is the key to business continuity and ideally growth and expansion over time.
Of course, managing business expenses is easier said than done, especially during times of economic uncertainty. Traditional ways to manage cash flow are decentralized, cumbersome, and prone to error.
Read on to learn more about the challenges of managing modern business expenses and how cash flow management software can help.
The Vast World of Business Expenses
The old adage that you need to spend money to make money is true. Most businesses, regardless of size, must pay employee wages, suppliers, and bills to operate and generate revenue. All costs associated with running a company are collectively known as business expenses.
Indeed highlights the three most common types of business expenses as follows:
- Fixed: Expenses that remain the same over reporting periods, like rent or insurance payments.
- Variable: Expenses that change throughout the reporting period; examples of variable costs include shipping and utility payments.
- Periodic: Expenses happen occasionally across different reporting periods, such as emergency equipment repairs or annual bonuses.
The Importance of Cash Flow Management for Small Businesses
Understanding your business expenses is important for managing the overall cash flow of your organization. As the name suggests, cash flow is the movement of money in and out of a business.
According to Investopedia, cash received represents inflows, while money spent on business expenses represents outflows. A business should strive to have a positive cash flow. Simply put, this means the business is earning more revenue than it is spending.
Cash flow is perhaps the most important financial statement of a business. This is how a business creates value for shareholders and assesses a company’s liquidity, flexibility, and overall financial performance. These numbers are also essential to make decisions around spending, hiring, and investing.
Best Cash Flow Management Techniques
Unfortunately, many small business owners don’t understand how to properly track business expenses or create accurate cash flow statements. A recent study conducted by SCORE and US Bank found that 82% of small businesses fail due to poor cash flow management.
Here are a handful of the best cash flow management techniques to help your business stay on top of cash flow forecasting in the long term.
- Send invoices in a timely manner to help create a consistent and accurate cash flow
- Make cash flow forecasts frequently to make more accurate predictions
- Stay ahead of potential issues and borrow money before you need it
- Understand basic accounting principles or hire an accountant to help monitor the financial health of your business
- Use technology to your advantage
There is no one-size-fits-all approach to cash flow management. Every business may need to operate slightly differently based on their needs and business expenses. However, these best practices are the basics most organizations can benefit from.
Benefits of Cash Flow Management Software
One of the most efficient and cost-effective ways to manage your cash flow is to invest in the right cash flow management software. An all-in-one platform helps you centralize control of cash flow to assist with the following:
- Monitoring cash flow to identify potential issues before they arise.
- Budgeting and forecasting to help you make strategic plans for the future of your business.
- Gaining an accurate picture of future cash flow to optimize decision-making.
- Identifying areas to cut costs and improve efficiency to support a positive cash flow.
- Sending out invoices promptly and following up on late payments in a timely manner.
Cash flow management software can provide your business with a clear picture of its financial health. When you understand the financial status of your business, you can make better, faster decisions to increase your cash flow and ensure compliance for future growth.
The Future of Cash Flow Management for Small Businesses
It is time to let go of the old way of managing cash flow. Using siloed applications and manual accounting is a time-consuming process prone to human error. Not to mention, you’re disconnected from financial professionals who can help. This way of doing things slows your business down and opens it up to non-compliance issues.
Understanding and monitoring cash flow gives your business the best chance to scale and succeed. FINSYNC’s all-in-one platform helps you centralize cash flow, automate accounting, and connect with the right financial professional at the right time.
How FINSYNC Can Help
FINSYNC allows you to run your business on One Platform. You can send and receive payments, process payroll, automate accounting, and manage cash flow. To learn more about how we can help your business start, scale, and succeed, contact us today.