business-cash-flow-statement-preparation-raleigh-nc

As a business owner, you know sales and profits are key to long-term growth and success. However, business cash flow is what gets you through the daily operations and covers you through your lean times so you can pay employees, maintain inventory, and cover emergencies. Converting your sales into accessible cash and minimizing outgoing expenses is key to keeping your doors open, even when disaster strikes. To help make sure this happens, our accountants in Raleigh are providing you with an in-depth guide at how business cash flow really works.

What Is Cash Flow?

Simply put, cash flow is the money moving in and out of your business each month. It flows in by way of sales and flows out by way of payroll, taxes, buying supplies, and paying on loans. Having positive cash flow means you have liquid assets available in the bank after your necessities are met at the end of the month.

Isn’t That Profit?

Cash flow is how much money is going in and out of your bank account, whereas profit is how much gain your business is making after all expenses are subtracted. In some businesses, making a strong profit on your products doesn’t mean you’ll have money in the bank and vice versa. For example, if you have customers or clients who have 60 days to pay an invoice, you may not get your revenue in time to meet your expenses. Or, if you have cash because you took out a loan, you have money on hand, but the debt and interest can cut into your profits.

The key takeaway of your business finances is that both cash flow and profit are essential to a successful business. A positive cash flow can give you a better chance of surviving hardships and over longer periods of time, but if you’re not profitable, you won’t maintain a positive cash flow for long.

4 Ways to Increase Cash Inflow

A positive cash flow starts with adding revenue into your business, so implementing these four strategies will give you a powerful boost.

Sell or Retire Inventory

If you sell a physical product, much of your assets are tied up in your inventory. This is fine as it sells, so you’re constantly rotating inventory for revenue, and if your goods are marked to make a profit, you should be fine. However, if you have products that aren’t moving, you’re tying up capital and valuable space that could be used for selling profitable items. If you have inventory that hasn’t moved in 12 months or is unlikely to be used in 12 months, sell it at a deep discount.

Stage Payments

Providing a service over a long period of time, like construction, or allowing payments on wholesale goods means you may have made the sale but don’t see any money from it for several months. This can be literally disastrous for your cash flow. Instead, stage payments can work in your favor. For example, if you have wholesale goods, ask for 25 percent up front, 25 percent on delivery, and 50 percent of the cost at a net 30. In a service, set payments after certain completion points of the project.

Reward Early Payments/Decentivize Late Payments

If your revenue comes through accounts receivable payments, and there are delays from selling to getting paid, you want to minimize those delays as much as possible. Consider offering a 15 percent discount to people who pay within 14 days if you operate at a net 30. On the other hand, if having customers who pay late is an ongoing issue for your business, you may need to charge an interest rate or a late fee to discourage late payments.

Revisit Your Pricing

Most business owners are hesitant to raise prices, afraid they will lose customers. First, your prices have to provide you with a profit – if the cost of acquiring inventory or the cost of providing a service (insurance, rent, equipment) has gone up, your prices may need to get a boost too. Second, pricing sets a perceived value, and often, people who may not have taken you seriously before will be more inclined to buy, assuming your quality has gone up with the price.

4 Ways to Decrease Cash Outflow

As you bring in more cash, you also want to decrease how much it leaves your bank account.

Re-Negotiate Contracts and Services

If you’ve used a service for several years, take the time to re-visit it. Are there parts of the contract you’re paying for that you don’t use, and if so, will you still need it? For example, if you have a business landline, could you transition to a less expensive VOIP (Voice Over Internet Protocol) in which you use your computer to make calls and communicate?

Also, if you have a good relationship with suppliers or vendors, see if you can negotiate a discount for early payments or other better deals.

Form a Buying Collective

Bulk prices are cheaper, but if you’re a small business, you may not need to purchase mass quantities of office supplies or inventory. However, you can connect with other businesses and create a collective, pooling your funds to get lower prices from a supplier.

End Ineffective Marketing Strategies

There are dozens of marketing avenues available to your business from Facebook ads to radio and print. If you are paying for advertising or marketing that isn’t drawing in leads, it’s time to revisit it. See if other businesses in your industry are successful with that marketing method and if so, how or what are they doing differently? Maybe you need to spend a bit by hiring a marketing professional to see a massive return on investment, thus, increasing your cash flow. Or maybe it’s time to shift directions to a marketing strategy that will pay for itself.

Overestimating Sales Volume

One of the biggest fears new entrepreneurs have is running out of a high-demand product. This fear, coupled with difficult sales forecasting and relentless optimism means you over purchase inventory. While you want to scale up your inventory around the holidays or during times of high volume for your industry, doubling your inventory may leave you with little cash and a store filled to bursting with inventory you can’t move.

Track your trends, factor in the turnaround time from when you order to when stock comes in, and order inventory accordingly.

Being Prepared for Disaster

With the COVID-19 pandemic forcing business closures and requiring all but the most essential actions be put on hold, having a positive cash flow is more important than ever. Operating with liquid assets means that you can continue to meet payroll and meet your accounts payable until you can get back in business.

If you’re not sure how to create business cash flow statements or how to implement ways to increase cash flow for your unique business, sitting down with a small business accountant can be the difference between success and struggle.

Contact Our Accountants for Business Cash Flow Guidance

Our small business accountants in Raleigh are here to work with you to help your organization thrive, even during challenging times. Schedule a consultation today by calling us at  (919) 872-0866 or filling out the form below to get started.