The state of your company’s cash flow is among the most significant metrics that every CEO or business owner in the CSRA should track.
So, as Wells Fargo notes. “A consistent, positive cash flow can help you pay expenses, invest in new opportunities, and grow your business.”
As business agendas go for 2022, you can’t do much better than that.
With an assist from some of my TAB colleagues, here are some key tips to help boost your company’s cash flow in 2022.
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Look at where your finances are today.
There’s no better time than right now to closely review the cash flow situation within your company. “Ask your finance team to closely scrutinize all areas where money is being spent.” In fact, consult anyone in the company who has “a close financial understanding of your business” to help you “re-set priorities that emphasize cost reduction, not spending.”
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Take a strategic approach to paying bills.
It might sound counter-intuitive but trying to pay bills as soon as they come in isn’t necessarily the best strategic approach to boosting cash flow. Focus instead on making payments based on priority of importance to the business (rent, payroll, etc.). When possible, stagger payments to avoid feeling pressure to pay everything at once.
Speaking of paying bills, the start of 2022 marks a good occasion to renegotiate contracts with your vendors and compare pricing.
Suppliers who want to retain your business will usually be amenable to offering discounts or a flexible spending plan that allows you keep a healthy cash flow in place.
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Encourage prompt payment from customers.
Having a steady flow of incoming revenue is essential to healthy cash flow. That’s where accounts receivables come in. The management accounting firm Growth Force recommends several actions you can take, including:
- Request an initial deposit or partial payment at the beginning of a project with a new client.
- Alter your accounts receivable system so that clients receive your invoice immediately upon delivery of products or services, instead of invoicing for services rendered on a pre-specified day of the month.
- Do a comprehensive evaluation of past due clients.
- Make customer payments easier to complete, as, for example, through mobile or electronic payment options.
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Keep a close eye on inventory.
Products that sit in inventory for long periods of time represent a potentially significant drain on your company’s cash flow. Sell it at a discount.
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Do a better job of forecasting.
In many cases, companies have sufficient experience to engage in detailed financial forecasting for the year (or years) ahead. Scott Morris, Director at TAB East Auckland, offers these methods to make forecasting easier:
- Do it quarterly.
- Group accounts into categories.
- Trends are your friends — use rolling three months and rolling 12 months when possible.
- Measure actuals against forecasts each month to improve your forecasting skills.
- Work with a trusted advisor.
“If your forecast shows that your company is not generating cash for the business, you know it’s time to take action on your expenses, working capital, or capital expenditure budgets,” adds Peter Santry, Owner at TAB Fairfield County, Connecticut.