Monday, 27 Jan 2020
It can be stated without a doubt that the flow of capital forms the backbone of every business. The success of every venture is dependent on the presence of cash. Without it, an entity ceases to exist as it will not have money to secure stock and pay salaries.
In literal terms, the cash flow of a business is the incoming and outgoing capital in a given period of time. The amount left after deducting the expenses from the receivables is the net cash flow which determines the health of the business.
An effective cash flow management requires assessment, analysis and optimisation of this net amount. If a business fails to do so, it has to face losses which can lead to a shutdown. This is the reason why most entrepreneurs rely on professional bookkeepers in Melbourne to improve the flow of cash and manage it proficiently.
It helps in avoiding the shortage of capital for an extended period by reducing the gap between the inflow and outflow. The management is essential to sustain a business and keep it afloat. So here is how bookkeepers help in managing the cash flow, which plays a key role in the growth of the organisation.
If you own a start-up in Melbourne, then your bookkeeper will prioritise reaching the breakeven point. Once you have accomplished this goal, the next step will be to maintain the profits and keep them increasing to develop the business further.
So the bookkeeper will prepare cash flow statements every month which will represent the cash that will go out of the company (payments made to the suppliers and vendors, wages and debts) and the capital which will flow into (money received from sales and loans) the business.
Besides the statement, the bookkeeper will also prepare a cash flow forecast which will project these amounts for the next month, or upcoming quarter, or the financial year. The data acquired from the statements helps in envisaging the forecast.
This future planning allows the entrepreneur to understand the availability of cash at any given point in time and also informs them about any suspected shortages that can create financial challenges. With these projections in mind, an entrepreneur in Melbourne can make an informed decision and manage the funds as per the insights.
Although all business owners are aware of maintaining cash reserves, it is often taken lightly. A shortfall can happen all of a sudden and catch you off-guard. So must make sure that you have enough working capital which can support your business for three to six months.
It will give you ample time to cover the shortage and salvage your situation during an economic slowdown. This reserve acts as a backup plan which saves you from bearing the brunt of a cash crunch.
You can create this cash reserve over a few months as part of your savings plan and keep increasing the amount being saved every month to get a substantial figure. If this is not possible, you can rely on money lenders in Melbourne to stay safe during an upheaval.
The quicker you receive the outstanding amount from your customers, the better it is for the health of your business. If you keep sitting on the invoices or delay the process, it can reduce the inflow of cash and disrupt the net cash flow.
So appoint a bookkeeping company in Melbourne which will send out an invoice as soon as the products and services are delivered instead of waiting until the end of the month. If you have a long-term contract with a client, then you can ask for a deposit in the beginning and set periodic billing points for every month or quarter.
It can be articulated to the client in the form of payment terms as per the contract law. An experienced bookkeeper doesn’t lose track of the overdue invoices and follows up with the clients for payments. You can also make them pay on time by offering discounts for early payments. You can make the payment process easy for the customers in Melbourne by sending a payment link in the invoice.
The idea behind delaying the process of making payments to vendors and suppliers in Melbourne is to keep cash in your account for a longer time. However, you must not push the deadlines too far as it may incur penalties and lead to higher expenses.
You can negotiate the payment terms with your regular suppliers and extend the time to 60 days or 90 days to maintain positive cash flow. You must hire the right bookkeeper to make sure that such negotiations can be realised without any disputes. Also, the bookkeeper must utilise accounting software to keep things under control, minimise errors and monitor the flow of cash.
To retain cash, you also need to cut back on redundant expenses through judicious use of amenities and avoiding wastage of money. You can switch to energy-efficient power sources in Melbourne, such as solar panels to fulfil your unit’s energy requirements.
It can help you save significantly on power bills and get renewable power incentives. You can negotiate terms with your internet service provider and your landlord to get better prices and discounts.
If you have a long-standing relationship with a supplier, you can use it to your advantage and gain concessions on inventory acquisition. Also, you must concentrate on local marketing to improve sales rather than advertising nationally.
As an entrepreneur in Melbourne, you must be aware of the level of the stock present in the organisation at all times. Your bookkeeper should analyse the consumption of the inventory after every few days to assess which items are getting sold and which ones are only taking up space in the storage.
The products which are not generating sales should be discontinued to avoid wastage of money on manufacturing and advertising of these goods.
Another way of improving the flow of cash is to increase sales of your goods and services. You may consider targeting new markets to acquire more customers. However, it will need more investment, so it is better to change your approach and sell more to the existing customers in Melbourne.
Adopt a customer loyalty program and offer incentives and discounts to repeat buyers so that they keep coming back to you. It will help boost the sales without putting a huge amount back into the business.
Cash flow is the governing factor when it comes to measuring the success of a business. Thus it is essential to maintain adequate working capital to avoid chances of bankruptcy. With the points mentioned above, you can enjoy an efficient cash flow management and function with complete peace of mind.
We are a family run bookkeeping business that has grown to include offices around Australia in Melbourne, Adelaide, Brisbane, Sydney and Canberra. We have been helping our clients grow since 2001. Being one of the leading Bookkeepers in Melbourne, we are offering free consultation to every new client.
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