Cash flow is king when it comes to sustaining your business long-term. And it doesn’t matter if you are running a small business or a nationwide organization, cash flow is the backbone of any size company. If you’re not paying close attention to the status of your cash flow, you could find your business with a financial challenge very quickly.
As a collection agency working with all sizes of organizations and their accounts receivable management, we are often asked to take a look at how our team can improve the cash flow of our clients. When we start out, we offer an initial assessment of what we see and that conversation sometimes leads to us hearing about other cash flow challenges a business may have. And some we find can be making some critical mistakes that can be fixed with some minor internal adjustments.
If you are making some of these internal mistakes, it’s time to make some changes.
Not having an annual budget
Mostly, we see this when we are asked to come in and provide debt collections for small business. After an initial assessment with some of our potential clients, we arrive at the fact that they do not lay out an annual budget for their business. This is one of the most basic tools in understanding the full financial health of your organization and can give you a snapshot of what you may need to focus on. One thing an annual budget can help you with is controlling your expenses. If you have annual numbers to guide you in various categories, your business is more apt to stick to those numbers.
Not taking accounts receivable management seriously
Oftentimes we find businesses will let their accounts receivables get ahead of them and then it becomes a real financial challenge for that organization. Sometimes they have a policy of letting late payments go way too far and then they find them hard to collect. Especially when it comes to small businesses, we find many do not want to damage their reputation by getting more assertive in securing payments. But that should not be the case. You can be nice and get your customers to pay at the same time. Paying close attention to your accounts receivables and having a bookkeeper and other team members follow strict payment guidelines can make a big difference in your cash flow.
Not asking for help when you need it the most
As a collection agency, we see this far too often. Business owners and managers will struggle with their accounts receivables for way too long. The issue is compounded every month when payments do not come in the door and their negative cash flow gets far ahead of them which only causes stress. Sometimes the job of getting customers to pay is best handled by a third-party collection agency. Outsourcing your accounts receivable management can be a game-changer as we’ve seen so many times over the years. But we find many businesses let this go far too long.
It’s also important for you to have the proper financial guidance from a professional bookkeeper and a CPA. Even if you retain people for these roles and don’t feel you’re getting adequate advice, it’s time to ask for help from new resources and get a different point of view on where your cash flow might be suffering.
Not understanding your profit margins
We’re confident that with the proper help, you can get customers to pay on time. That will certainly help with your cash flow. But if you do not take the time to understand what will make your organization profitable, you will still be stuck with financial challenges in your business.
Through COVID-19 and during 2021 the business community witnessed a substantial rise in the cost of goods as well as labor. But regardless of that, the costs associated with running your business no matter the year will fluctuate either up or down. And it’s vitally important that you keep an eye on these before profit margins get ahead of you can you find yourself looking for cash. We’ve seen far too many businesses lose money because they did not pay attention to profit margins.
We often think of profit margins as something that affects businesses that sell products, but it can equally affect profit margins in service businesses. There are any number of fees that your company will pay that can lower your profit margins. Once again, your bookkeeper or CPA can help you review these regularly and ask for adjustments or seek other alternatives if necessary.
Does your business need to get a grip on cash flow and accounts receivables? Give our team a call today and book a free consultation!