As a professional accountant who has worked alongside many of you, I know the hurdles you face daily. Today, let’s dive into how this one strategy can significantly increase profits.
Understanding the Current Landscape
Challenges Facing Small Businesses: It’s a tough world out there. You’re juggling operations, marketing, customer service, and, of course, finances. Each of these is crucial, but mismanaging just one aspect can tip the scales against you.
The Role of Financial Management: Here’s where the magic happens. Financial management is the backbone of your business – get it right, and you’re on a path to success. And this is where our little trick comes into play.
The Management Trick – Effective Cash Flow Management
Introduction to Cash Flow Management: Cash flow management, in its essence, is about balancing the money coming in and going out. Simple, right? But it’s surprising how often this basic principle is overlooked.
Common Cash Flow Mistakes: Many of you might relate to this – a client of mine, let’s call him Bill, once overlooked her cash flow to the point where rapid growth nearly bankrupted him! Growing too fast without managing the cash can be a recipe for disaster.
Implementing the Trick: So, how do you get it right? Start by keeping a close eye on your accounts receivables and payables. Use technology to your advantage – there are plenty of tools out there that can automate and simplify this process.
Use your profit & Loss Statement as a starting point to calculate the minimum cashflow needed to survive. That is, calculate the business total costs for three months (at least!) including your wage and loan payments. You accountant can help you calculate this. Now take that magic figure and enter it as part of the account description in your Xero file and your online banking for your business working bank account.
Now understand that you must keep a minimum cash balance of this amount. Do not spend anything on business non-essentials unless the spending maintains the bank balance above this critical level.
Impact on Profits
Direct Effects of Improved Cash Flow Management: By mastering cash flow management, you’re ensuring that your business isn’t just surviving, but thriving. It’s the most straightforward way to increase success.
Long-Term Benefits: Think about it as setting a strong foundation for your business castle. With a solid base, you can build and expand with confidence. It’s not just about the immediate increase in profits; it’s about sustainable growth.
Practical Application
Tools and Resources: There’s a myriad of tools out there including Xero that I recommend. They are user-friendly and can give you a real-time picture of your financial health.
Overcoming Common Obstacles
Identifying Obstacles: The biggest hurdle is often just getting started. It can be overwhelming to look at your finances and not know where to begin.
Solutions and Strategies: Start small. Focus on one aspect of your cash flow and improve it. Maybe it’s negotiating better payment terms with suppliers or incentivizing early payments from clients. Small steps lead to big changes.
I’m here to help. If you’re feeling stuck, reach out, and let’s get your business on the path to increased profits.
Author: Janelle Bartlett
