When it comes to the financial management of any business, managing cash flow effectively is absolutely essential for survival. You have probably heard the statistic that 82% of small businesses fail due to poor cash flow management. So how does your small business avoid becoming a part of the statistic..especially in 2020 with a turbulent economy. An outsourced financial controller can greatly improve cash flow management for small businesses, and ensure it is regularly monitored.
If you cannot manage your cash flow within the first year, you will likely not survive the second year. You must be able to effectively manage accounts receivable, account payable and any shortfalls in between. Below we have outlined ways an outsourced financial controller can help you manage and improve your cash flow.
1. Evaluate Cash Flow Needs
The key to financial success for any seasonal small business starts with an in-depth analysis of your cash flow situation. Until you fully understand how and when money flows into and out of your business throughout the year, any steps you take toward better cash flow management are ultimately just a guessing game.
Before anything else, properly managing your cash flow should start with putting together two key financial documents: your statement of cash flow and your expense forecast statement.
The key to managing cash flow for any small business is starting with an in-depth analysis of your current cash flow situation. Your outsourced financial controller can help you understand how and when money flows into and out of your business throughout the year. This is especially important for any seasonal small business. He or she will help you put together two key financial documents, your statement of cash flow and your expense forecast statement.
Preparing your Cash Flow Statement
A cash flow statement has the ability to show how and when money flows into and out of your small business over a long period of time. An outsourced financial controller will review past income and expenses over the course of at least an entire previous year to get an accurate idea of what future years will look like. Preparing your business first cash flow statement is an intensive and time-consuming process. Once this document is created, it will absolutely maintain in the future, and the knowledge you gain from it will make a difference between success and failure for your seasonal business.
Expense Forecast Statement
Once you understand the ups and downs of your seasonal cash flow, your business will be in a much better position to forecast the expenses that are likely to arise over the course of the next year and next offseason. The main difference between your cash flow statement and expense forecast statement is your statement of cash flow is an analysis of past transactions, whereas a forecast is a collection of educated guesses about what you can expect from your future cash flow needs.
It is essential to pay attention to preseason expenses that will arise just before your busy season so you know your small business is equipped to handle those needs, such as inventory purchases or early staffing requirements.
Help Reduce Costs
Could your small business cut back on rent or payroll? Are you spending money on subscriptions or services you are no longer using? An outsourced financial controller can look at recurring monthly, quarterly, and annual expenses and help you determine which areas to cut back on. They also have the ability to renegotiate the terms of outstanding loans or leases.
Stay on Top of Invoicing
Why wait to send out invoices after a job is complete? Your outsourced financial controller will help you keep net-30 and net-60 terms in contracts to a minimum. He or she can also help you design your invoices so they are straightforward and easy to read, with key areas like due dates, the amount due, where to send payment and payment methods, etc. Your outsourced financial controller may even set up a system to email invoices instead of mailing them, which is typically much slower. If necessary, delegate the task of keeping an eye on receivables and contacting customers periodically to collect payment to a trustworthy, persistent member of your team.
Plan Ahead for Unexpected Costs
Unexpected costs are a huge reality of business ownership. You may have missing inventory, lose an important asset, have to repair something in your shop, completing a project that took much longer than expected, the list goes on of all the possibilities. These factors are a reality of doing business, and seasonal business owners, in particular, don’t have the luxury of pretending that these unanticipated costs won’t come up.
An outsourced financial controller will help anticipate the unexpected within your cash flow management plan but implementing the following:
An Emergency Fund
Your outsourced financial controller will recommend setting aside at least one month of average business expenses. Many cash management experts will recommend setting aside a three-month emergency fund. This may sound like really simple advice, but it requires serious discipline. To keep yourself accountable and avoid dipping into this cash reserve for every seemingly must-have opportunity that comes along, consider letting your outsourced financial controller monitor this separate fund.
Include Contingencies in Your Budget
Entrepreneurs are a notoriously optimistic bunch. They often time consistently underestimate future expenses while overestimating future sales volumes. Your outsourced financial controller will suggest adding a contingency category equivalent to 20%-30% of your total expenses. This will account for the nicks and cuts of small increases in inflation, increased shipping costs, or price changes on certain goods. There is no harm in leaving yourself a margin of error. In the event that this fund goes unused, it can let you take advantage of last-minute growth opportunities or even be distributed as additional profits.
Use Technology to Your Advantage
Technology can be small business owners best friend. Using sites such as Dropbox and OneDrive allow you to access documents from anywhere. Professional accounting software can make tedious accounting tasks much more simple. You can also set your software or spreadsheet to display key data, such as cash on hand, your cash conversion cycle, days receivable/payable outstanding, days inventory outstanding and gross profit.
Final Thoughts
Outsourced financial controller services can help keep your small business on the right track with the cash flow management techniques discussed above. Cash is king for small businesses, and ensuring it is managed properly is essential for survival. Building and keeping an adequate stockpile of cash provides maximum opportunity and flexibility to any business while enabling its owners to sleep soundly at night.
Without cash, profits can be meaningless. Many profitable businesses on paper have ended up in bankruptcy because the amount of cash coming in doesn’t compare with the amount of cash going out. Firms that don’t exercise good cash management may not be able to make the investments needed to compete, or they may have to pay more to borrow money to function. Hiring an outsourced financial controller can ensure your small businesses doesn’t find itself in a cash crisis.
Limitless Investment & Capital Outsourced Financial Controller Services
Have you suffered cash flow problems? Limitless Investment & Capital outsourced financial controller services can ensure cash flow management and tracking is not disregarded. When it comes to making any business decision — financial or not — you can look to your financial controller as a trusted advisor and see what he or she has to say. We are even offering a free financial consultation to asses your small business cash flow issues. Let’s get started TODAY!