CPA In Indianapolis Gives Insight On –How To Avoid Cash Dilemmas
Often, when an entrepreneur thinks about business, his concern is only whether he is making money or not. And as long as revenues and sales are increasing, he assumes his finances are in shape – without taking a close look at how cash is flowing through his business.
This kind of mentality can get a business into trouble. Because cash is king, it is a resource that should be protected to the fullest extent. And this protection starts with taking preventive measures to avoid cash dilemmas from happening in the first place.
Taking preventive measures is always less costly than trying to correct a problem once it has occurred. In this case, the cost may be the interest on a loan that you’d have to take out, or having to inconveniently reach into some other resource – such as your personal or savings accounts. And of course, the most costly errors related to cash can cause the failure of your business.
So, in order to limit the possibilities of you having to pay these costs, here are six strategies that you can use to avoid cash dilemmas:
- Keep A Close Eye On Cash Flow – As mentioned earlier, an increase in revenues or a nice bank balance doesn’t necessarily mean your cash flow is healthy. So, it’s important to take time each month to prepare and review financial reports – especially your cash flow statement.
- Pay Bills Intelligently – Making the most of vendor terms. Generally, you should take as much time as you are allowed to pay invoices. Through your bank, you may have the choice of choosing the exact date of payment with electronic billing.
- Take Advantage Of Incentives – While it is usually better to pay bills later, it may be worth it to pay them early if the supplier offers you an incentive. For example, if the money is invested, a 2% discount on a 30-day invoice translates into a 24% annual return.
- Keep Track Of Receivables – Slow paying customers can be a real problem. Use the invoice tracking schedule that comes with your accounting software, and take timely action to recover overdue invoices.
- Watch Your Inventory – Retailers are especially vulnerable to cash issues that result from excessive inventory. However, keeping track of the numbers in your budget overtime can provide you with more accuracy of expected sales – giving you a more accurate estimate of demands on inventory. And also, outdated or stale inventory can often be turned into cash through special sales or promotions.
- Consider Leasing As An Option – While leasing costs more than purchasing in the long run, its cash flow benefits may make it an appropriate choice. Leasing computers, cars, and other assets lets you avoid tying up lines of credit or other cash resources that can be used for daily operations. Also, because leases are considered a business expense, the tax benefits are still maintained
Good cash management is really about making every dollar count. These were just six ways improve your cash flow, and there are several more. If you can develop the habit of considering the cash flow implications of your decisions, you’ll be on the right path to long-term profitability.
For more ideas on how to improve your cash flow, contact Larry Marietta, CPA.