Is your business profitable but still tight on cash?
Cash flow management is one of the most important aspects of running a successful business in Orlando. Yet, despite its importance, most owners focus on revenue and profits, while cash flow is forgotten. But, ignoring the flow can lead to inconsistent money streams, missed payments, and even closure if it’s not under control.
That’s why we’ve outlined some of our top accounting tips to help Orlando businesses stay financially strong.
1. Understand Profit Vs. Cash Flow
Simply put, profit is the money left over after any expenses are subtracted from revenue. However, cash flow is the actual movement of money in and out of the business.
Inexperienced entrepreneurs who do not understand these differences might believe that a strong cash flow is indicative of a high revenue stream. But beware, as this is not necessarily the case. Many companies can be profitable but still face cash shortages if something like a late payment or unexpected expense hits the account at once.
To prevent cash flow issues from impacting you, be sure to have a clear understanding of your profit and cash flow margins.
2. Monitor Accounts Receivable
It’s important that owners review their accounts receivable regularly. This means taking time to go through the entire account, line by line, to follow up and flag any invoices or bills that are outstanding. If this is not regularly done, owners are at risk of missed payments, disputes, and mismanaged funds that could greatly impact a company’s bottom line.
While reviewing your accounts, it is also a good idea to review the payment terms and conditions to ensure they are clear and have been outlined to any customer to avoid payment delays.
3. Forecast Cash Flow
Owners need to keep track of their cash flow so they know what income and expenses are hitting their accounts. Without this information, owners won’t be able to identify potential gaps or make strategic adjustments before it becomes too late.
So, be sure to outline what your predicted earnings are in the coming months vs. expenses. That way, you can make better business decisions based on how much cash flow you have available.
4. Build a Reserve
All owners can agree that unexpected expenses are part of doing business. But for those who are unprepared, unexpected bills like emergency repairs, slow sales, or harsh economic changes can cause serious financial harm. This is why it’s important for owners to have a cash reserve.
A reserve should only be used when necessary but will be there to provide a financial cushion when things get tough. Ideally, owners should have three to six months worth of expenses sitting in an account that they can pull from and continue to operate with, even if circumstances are rough.
5. Be Strategic with Accounts Payable
Paying bills early might actually have a negative impact on your cash flow if you’re spending the money before you have to, or before more comes in. So, to protect your cash and be able to spend it when you need to, owners should review any bills to make note of the deadline and payment terms by scheduling them or setting reminders the day-of.
Ultimately, Orlando owners that want their business to succeed need to stay proactive with their finances. This means planning ahead and actively monitoring business accounts, regardless of how heavy the cash flow seems.
If you’re an owner that’s struggling to manage your accounts on your own, consider contacting us at A.P. Accounting & Tax Services at 407-328-5001. Our team is ready to jump in and help keep businesses organized, profitable and prepared for whatever comes next.
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