Improve your cash flow by understanding your cash cycle.

Your business cash flow encompasses money flowing into your company through revenue and flowing out through expenses, creating a financial ecosystem requiring constant attention. The cash flow cycle tracks how long it takes for funds to hit your account, after you’ve incurred the expense of providing the product or service.  Effective cash flow management also means sufficient liquidity (cash in the bank) to meet financial obligations when due (pay your bills on time).

Cash Flow Tracking

Modern accounting software solutions like QuickBooks provide real-time transaction monitoring that automatically categorizes income and expenses, generates cash flow statements, and provides predictive analytics.

For businesses preferring simpler approaches, well-designed spreadsheet systems can effectively track cash movements when properly maintained. However, manual systems require disciplined data entry and regular reconciliation to ensure accuracy.

Pay close attention to:

• Any business costs that tend to go under the radar that you may not need, especially recurring subscriptions and automated payments that can accumulate
• Whether sales have been stable, are on target for growth, or have flattened out. If there’s a seasonal impact, then it’s important to develop tactics to smooth out the drop and make the most of peak times.
• Which products or services are the most popular? Seek to promote and focus on these and consider dropping those that don’t sell as well.
• Which expenses are costing the most, and to decide if they’re all necessary. How can you reduce any initial expenses while maintaining the quality you offer?

It’s best to establish a system to track the flow of cash, such as accounting software that tracks transactions in real time. If a spreadsheet or manual system works efficiently for you, that’s great too. 

Ways to Increase Profitability

For most businesses, the easiest way to improve profits isn’t landing the next big client. It’s improving the little things, such as:

• Increasing prices by 5 percent.
• Collecting money owed to you faster.
• Investing spare cash to gain maximum interest.
• Checking that you’re not paying too much for overheads like power, the internet and office supplies. These can be small amounts but they add up over time. Now that you’ve been in business for a time, you can probably look to renegotiate some of your earlier agreements.

Improving business profitability often requires focusing on incremental improvements rather than pursuing dramatic changes that may disrupt established operations.

Assessing Working Capital Needs

There could be any number of reasons that you might need more cash. For example, sales and expenses haven’t been what you forecast. Or your business is going so well you can’t keep up and need to expand faster with more equipment, inventory, staff, locations and cash reserves.

Growing businesses frequently require additional capital to support expansion, manage seasonal fluctuations, or address unexpected challenges.

We can help in a number of ways. These include:

• Short-term financing solutions to provide flexible access to working capital during temporary cash flow gaps
• Business loans to suit your circumstances and provide longer-term capital solutions for expansion projects, major equipment purchases, or working capital needs

It’s a great idea to get help to analyze what’s going on, especially if your business is in its early stages.

Steps to Manage the Cash Cycle

If you can shorten the gap from when you incur a cost (product, raw materials, staff, overheads) and when you get paid, you’re cash cycle shortens. To help do this, consider:

• Invoice less by asking customers to pay in advance, or immediately on completion of as job.
• Sending automatic payment reminders at 7, 14, and 30-day intervals for overdue accounts.
• Contact your top 10 suppliers by volume to discuss extended payment terms that align with your cash flow cycles.
• Request 45-60 day payment terms instead of standard 30-day terms, particularly during seasonal low periods.
• Offer to sign longer-term contracts or commit to higher volumes in exchange for more favorable payment schedules.
• Set up automated invoicing software that generates and sends invoices immediately upon delivery of goods or services.

Finally, It’s Easier Than You Think

Decide what method is best for you to keep tabs on your cash cycle, and make a commitment to keep a close eye on your bank balances on a regular basis. Upgrade from manual systems to accounting software systems that give real time data if you need to. Also make sure you have your banking set up how you want it and get the information you need to stay on top of your cash flow.

Once you’re getting an accurate cash picture of your business, you’ll be able to make better decisions to help lock in long-term success.

Next Steps

• Schedule weekly or monthly meetings with your finance team or key stakeholders to review cash flow statements, identify trends, and address immediate concerns. Document decisions track progress over time.
• Identify the warning indicators that trigger when cash levels fall below predetermined thresholds or when key ratios exceed acceptable ranges.
• Develop a visual dashboard from your accounting software that displays cash flow metrics including current cash position, accounts receivable aging, accounts payable aging, and rolling cash flow projections.

Create three distinct cash flow scenarios: optimistic, current projections, and pessimistic. Develop action plans for each like expense reductions, asset sales, or additional financing options that can be implemented quickly if needed.

If you’re looking for more guidance with managing your cash flow or for tools to make it easier, contact our Business Services team.