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Small Business Cash Flow

Updated: Mar 28, 2022

Cash flow can be a problem at the best of times, but even more so for small businesses. Now that the pandemic has affected everyone so badly, cash flow is more of a worry than ever before for many small businesses. One of the problems, apart from the obvious, is that many small businesses do not have their accounting system set up in such a way that cash flow management is easy.

Cash flow is simply the money coming in and going out of your business over a set period of time.

With your accounting system you should easily and quickly be able to identify when your cash flow is short when there is any extra. Making sure you always have enough money to pay for bills, services or merchandise is a good place to be in, but it can be hard to get to.

Setting up your accounting system to help you with your cash flow is easy but there are a few obvious errors that many new or small businesses make. One of these is accepting too many different forms of payment.

If you are selling goods through your website, people feel they need to put PayPal as well as bank transfer, cheque, cash and credit card. They feel that this will ensure more customers, as not everyone has the same payment setup.

You can limit your payment to credit card, and if you wish PayPal, which is still the most common online payment system. Nearly everyone has a credit card, and the majority of people use PayPal, so you’ve got just about everything covered that way, although if you can eliminate PayPal that simplifies your accounting.

What you want is a simple system, but the one that allows you to get the money the quickest, not a cheque which can take fourteen days to clear. Also cheques are not actually good for your business. They leave you with two options; one is to hope the cheque clears and you will get paid, and in that case you send the merchandise without having payment for it, the other is to make the customer wait two weeks until payment does clear and then another week until they receive the goods. Many people will not be happy with this delay. An instant payment lets you know exactly where you stand and how much money you’ve got and the sooner it’s in your bank the sooner you have money cleared to pay your bills and so on. It also leaves you without the extra accounting headache of ‘open accounts’ or ‘cash receivable’.

If you use our Probookkeeping service it can be set up that the Xero software will include all your invoices as well as bills and bank statements, therefore you have your cash flow to hand in one place.

It will also automatically pay your bills and this reduces the time you spend running after money and keeping track of what you owe and when.

As far as your cash flow is concerned you need to remember payments that you must make, such as rent and payroll and ensure you have enough to cover these.

Just about all businesses run into cash flow difficulties at some point. This could be because they bought new premises, hired new staff or installed expensive machines. One way round this, if you don’t have the cash to cover it, is to set up a line of credit with the bank. Providing you have a good business and the chances of you being able to pay the money back are excellent, the bank will probably accept, and allow you a reasonable line of credit to use for short term difficulties.

On the whole, if you forecast well for sales and expenses you should be able to keep your cash flow running smoothly especially with a good accounting system.

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