Accounting & Bookkeeping Service

Managing Your Cash Flow Must Be Your Top Priority

Your San Diego business must be able to pay its vendors, your employees, and the bills in order to keep the doors open. It’s that simple. And making that happen means managing your cash flow. If you are struggling to keep the cash flowing, you aren’t alone. According to a study conducted by US Bank, four out of five small businesses close their doors due to problems with cash flow.

Don’t let your company become a statistic.

Your profit and loss statement may say you are profitable. Your sales reports may be showing a healthy business. But, if you can’t pay for your expenses, you are going to have problems. Let’s look at three strategies you can use to improve your company’s cash flow.

Strategy #1 Keep Multiple Business Bank Accounts

When you started your business, you likely opened up a bank account to handle the cash flowing in and out of your company. Then, when you need to buy something or pay a vendor, you know how much cash is available.

One expert recommends opening five bank accounts each with a different purpose:

  • Incoming revenue from customers
  • Operating expenses
  • Taxes
  • Owner salary
  • Owner profit

As money comes into the revenue account, your bookkeeper can move it out to the other accounts. It should be based on percentages determined by your business. You might allocate 50% for operating expenses, 20% for your salary, 15% for business profit, and 15% for taxes. Every one or two weeks you allocate the revenue into each account based on the percentages.

This gives you a healthy pool for meeting your operating expenses without starving you of your salary or profits. Plus, the tax money is set aside for quarterly payments made by your accountant.

Strategy #2 Collect from Customers Quickly

The faster you collect revenue from your customers, the more you will have in the account to cover your operating expenses. When you have to wait on customers to pay, you can start having cash flow issues. Here are a few ways to collect revenue faster:

  • If you are in a service business, require a deposit up front before you start work. The deposit amount will vary based on your industry and experience.
  • Make it easy for customers to pay using electronic invoices. Your accounting service can help you get this setup.
  • Keep track of who owes you money. Your accountant can give you an updated list of open accounts receivable.
  • Focus on collecting the oldest outstanding debts. Your bookkeeper can give you an aged receivables report to get started.

Strategy #3 – Delay expenses

It’s quite common for businesses to have to pay their employees and vendor for work that a customer won’t pay for until days or weeks later. This cash gap can be a major cash flow issue. But, with the help of a bookkeeping service, it’s manageable.

First, set up lines of credit with vendors. This gives you flexibility for when you pay for supplies. Your accounting service can schedule payments based on cash flow.

Talk with vendors about more favorable terms. This is especially important with companies you do a lot of business with. Being able to pay a couple of weeks later with no penalties can keep the cash flowing.

If your company constantly struggles with cash flow issues, it’s important to get the help of an accounting service that can help you manage it. OnTrack Financial’s San Diego accounting service can help your business get on track and stay on track.

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