For small companies, the most crucial yet demanding task is financial management of the business. You may be focusing on maximising the revenue, which is great, but you also need to collect the revenue to keep the business running.
Hence, following are the top three ways you can monitor the liquidity of your company easily:
Up-to-date and Accurate Accounting and Reporting:
You must invoice your customer and report the journal entry in your books of accounts as soon as possible. To ensure that all your revenue is collected, you need to know exactly how much revenue is owed to you.
Hence, if you’re not a pro at accounting, you can always hire accounting experts. They will provide you with the best accounting software like Xero, through which they will maintain your books on a regular basis, generate analysis reports and forecasts, and help you track the key financial ratios. This will help improve your receivables turnover, and hence, the cash flow of the company.
Learn To Deal With Customers:
Customer is king but when it comes to collecting the accounts receivable, you need to be strategic. Keep close tabs on the credit worthiness of all your clients to prevent bad debt expenses. In case of a high receivables turnover, you can introduce offers like a cash discount on early payments to tempt customers to pay on time.
A cash reserve can go a long way in helping you meet unexpected expenses. To avoid sudden liquidity problems, or to be able to take advantage of unexpected discounts and offers, set aside some money as cash reserve. It will also give you the confidence to take business risks that you usually wouldn’t, which may even turn out to be beneficial for your company.
Since cash is the driving source that allows small entities to keep up with the day-to-day expenses, and access to other means of credit is improbable, it is essential for you to be tactful towards financial management of your company to achieve business growth.