December 3

Managing Cash Flow — Tips From A Bookkeeper

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Cash flow is the lifeblood of your business. If you don’t manage it properly, you negatively impact every aspect of your company’s financial function. Here we share tips directly from a bookkeeper for managing cash flow to help improve your profitability. 

Understand The Importance Of Managing Cash Flow

managing cash flow means understanding the importance of cash flow in a business

Cash flow measures cash coming in and out of your business. By managing cash flow, you meet your financial obligations and use incoming cash wisely. Also, a lot of business owners confuse cash flow and revenue. Revenue is the money you earn, while cash flow relates to money not only coming into your business but also going out of it. It also considers other sources of cash, such as a loan or line of credit from the bank.

Sound financial management depends on cash. If you don’t have enough cash, you’ll eventually run into financial issues because you can’t fund your operations. Therefore, cash flow is the foundation of your financial health, and understanding it is the only way to ensure you can cover your expenses and generate profits. 

Learn To Read Cash Flow Statements

learn to read cash flow statements to manage cash flow effectively

Cash flow statements provide clarity in the cash movement through your business, including:

  • Cash flow from operations that tells you how money moves into your company through accounts receivable and out of it via accounts payable
  • Cash flow from investing based on investment gains and losses
  • Cash flow from financing, telling you how your credit is being used and repaid

Your statements allow you to gain insights on things such as outstanding customer payments, your expenses versus revenue, money generated via investments you can put back into the company, etc. If you can’t generate and read cash flow statements, you can’t manage the most basic aspects of your finances. 

Use Indirect, Not Direct Cash Flow Statements

The indirect method is simple, starting with your net income and adjusting that number as the amount of cash you have on hand changes. With the direct method, you have to list all your income and expenses, which is time-consuming and often confusing without the assistance of a bookkeeper. 

Don’t Overspend Based On Expected Revenue 

tips for managing cash flow - don't overspend based on expected revenue

You need to avoid spending money based on the expected revenue you spot in your accounts receivable. This is not money in the bank. For example, if you’re expecting a big cash inflow from outstanding invoices, you shouldn’t feel safe spending money on something like new computers. There is no guarantee that your customers will pay their bills on time, which can leave you in a negative cash flow position. 

Track Your Spending 

tips from a bookkeeper for managing cash flow - track your spending

If you find your net income was healthy for the period, yet your cash flow was low, there is an issue with your spending. You should track your spending to understand your activity, and where you are making bad decisions, such as spending money you haven’t received yet. Other possible cash flow issues might include investing money in a trade show that didn’t generate as much revenue or leads as you had hoped. By tracking your spending, you can spot these types of expenses and determine whether they are profitable or not. As a result, you’ll make smarter decisions in the future.

 Manage Accounts Receivable

manage accounts receivable for optimal cash flow

No matter how large your last sale was, it isn’t of any value if it creates a balance never paid for in your accounts receivable. If you allow large balances to sit on your books, you are losing money because your expenses continue to put pressure on cash flow. Money tied up in accounts receivable is a major drain on your business. Therefore, you need to understand how your payment terms and policies impact your cash flow.

You can improve cash flow by setting stricter payment terms and offering more payment options. For example, you might consider introducing discounts for early payments, especially on higher balances, or accepting more credit cards. You might also add interest at a certain timeline for carrying a balance. This can encourage earlier payment. Finally, make sure you have a concrete collection policy when bills aren’t paid and that losses are clearly recorded when doing your taxes to reduce the impact of unpaid bills.

 Manage Accounts Payable

A yellow binder with the keyword

How you pay your debts also impacts your business. While most companies have some debt, the more you carry, the higher the interest rates — and the longer it takes to pay off your debt, the more it costs you. For example, if you only pay the minimum payments on all your balances, you are wasting tons of money on interest. While it might feel like a smart strategy as it helps increase cash flow, you are paying way too much interest, which is a poor long-term cash flow strategy.

By managing accounts payable, you can look for opportunities for smarter debt management, such as:

  • Accelerated payment plans to reduce interest
  • Early payment with regular suppliers to leverage discounts
  • Paying off a higher-interest loan with a lower-interest credit option
  • Using cash when debt is getting out of hand

 Increase Liquidity

increase liquidity to optimize cash flow

Not having cash on hand is a sign of poor liquidity. You can improve liquidity to avoid cash flow issues with the following strategies:

  • Increase revenue: You might have been cruising after bagging a few good repeat orders. However, what if one or more of these orders stops coming in? You need to continue to find new customers to increase revenues so you always have positive cash flow and can effortlessly cover your financial obligations. You can also use existing customers and work to increase their average order value, and nurture those relationships to boost their lifetime value as a customer.
  • Improve profit margins: How much does each order cost you? These are your profit margins. You need to assess your profit margins to determine whether you are charging enough. If you are spending too much, you either need to a) raise your prices or b) reduce your overhead.
  • Improve inventory management: Having too much inventory or making bad decisions on the type of inventory you carry ties up cash. Using inventory management software can help you always have enough inventory to meet demand, spot opportunities to discount slow-moving items, avoid ordering items no one seems to want, and generally overcome cash flow issues by increasing liquidity.

 How Does A Bookkeeper Manage Cash Flow?

how does a bookkeeper manage cash flow

Understanding how bookkeepers manage cash flow also helps. Some tricks include:

  • Synching receivables to payables so the money you pay out is never more than what is coming in
  • Improving invoice cycles so payments are received quickly with shorter payment terms, providing varied payment options, or offering incentives for early payment
  • Paying debt off faster to reduce interest
  • Refinancing debt when it becomes unmanageable or puts too much pressure on cash flow

These are just a few examples of how bookkeepers manage cash flow effectively to improve the financial health of your business.

Intrepidium specializes in managing cash flow for small business. Call us today at 778-800-7976 or click here to schedule a consultation.

Ryan Roch, CEO Intrepidium Consulting Inc.

About the author

Ryan Roch is the CEO of Intrepidium Consulting, offering customized Bookkeeping, Accounting, Fractional CFO, and Tax Preparation Services to small and medium-sized businesses. With extensive experience in financial reporting, strategic planning, budgeting, compliance, and cash management, Ryan helps clients overcome financial challenges, gain clarity, and achieve their growth objectives.


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cash flow, managing cash flow, tips from a bookkeeper


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