Economies and markets throughout the world are ever-changing, and business owners must be prepared to face unforeseen circumstances that impact their companies in unexpected ways. Whether the cause is an economic downturn or a global pandemic, all businesses must learn how to adapt to uncertain times. For small businesses, adjusting to a changing marketplace can be particularly challenging.
It is during these times that small businesses must develop and execute solid financial strategies. After all, having a robust cash flow system is essential to maximizing revenue and paying operating expenses. To help small businesses forge ahead during these uncertain times, here are five must-know finance and accounting strategies to employ.
1. Improve the cash flow of your business
Cash flow is the lifeline of a business, so every aspect of it must be managed with care. What good is it for a company to generate more revenue if its expenses are out of control?
Here are some practical tips for small businesses to improve cash flow:
Invoices make it possible for clients to pay their bills, and providing a smooth checkout experience is one of the most important parts of migrating more of your business processes online.
Customers can sometimes forget to pay their business invoices, but this doesn’t mean that businesses shouldn’t pursue all payments in a timely manner. You should look for invoicing software that comes with crucial features like automatic billing for repeat customers to make sure you are getting paid on time.
Increase the prices of goods and services
Periodically, small business owners should assess their rates to determine if they are too low. Businesses that sell themselves short can come off as low value or less qualified than competitors. Do some market research to evaluate how your prices compare to other industry players.
Offer new products or services
Business owners must constantly be on the lookout for new and innovative ways to monetize their businesses. Adding new products to the mix can breathe life into a stagnant company and attract new customers. Adding content like a blog or podcast can also entice potential customers and get them to your website.
Evaluate operating expenses
Unnecessary expenditures can drain a company’s finances. It is essential for small business owners to assess expenses each quarter and reduce (or eliminate) them as necessary.
Some expenses that can wreak havoc on a company’s bottom line include:
- Coffee, snacks, and food for employees
- Subscriptions services
- Late payments of credit cards and other bills
- Trade show booths and attendance
- Ineffective advertising
- Inefficient employees
2. Track all expenses
It is essential that small businesses pay close attention to every expense. Taking this action can prevent wasteful spending before it gets out of hand, as well as help identify theft and fraudulent financial activities.
There are plenty of easy ways for businesses to stay on top of expenses, such as keeping receipts for business expenses and scanning them onto digital software that is safe and secure. You can create digital storage categories for each expense type as well.
If possible, pay for expenses with business credit cards. This can reduce the paperwork that small businesses have to keep track of. In addition, you can earn cash back rewards for purchases with credit cards.
3. Use finance and accounting automation tools
Manual accounting processes such as data entry and spreadsheets often increase the time it takes for businesses to get paid, so you could try finance and accounting outsourcing services to help you. In contrast, finance and accounting automation tools make the process of managing cash flow efficient, fast, and accurate.
When selecting cash flow automation tools, look for software or apps that are user-friendly. That way, employees won’t have to spend too much time learning how to use new software. It should also be easy on the customer side so as not to slow down any checkout processes or slow down your website.
You should also consider investing in cloud-based solutions. Cloud-based accounting solutions offer faster billing services and real-time data for analysis. Quality accounting tools also offer enhanced security that provides protection against malware and data theft.
According to web developer Alex Williams of Hosting Data, cloud-based technology is beneficial for scaling an online business:
“You end up with very quick loading times and lots of flexibility in climbing up or down the scale ladder,” says WIlliams. “This goes for space. Upgrades are immediate, which is why cloud hosting has boomed in popularity recently.”
Scalable software may have higher upfront costs, but they can serve as reliable accounting solutions for years to come. Some top examples of cloud-based financial automation tools for small businesses are:
- Intuit Quickbooks
- Wave Accounting
- Sage Business Cloud Accounting
4. Prepare a cash flow forecast
Quite simply, a cash flow forecast is a plan that estimates the future revenue and expenses of a business. Typically, there are three types of cash flow forecasts, short-term (30 days or less), medium-term (one month to a year), and long-term (one to five years).
A cash flow forecast gives business owners a glimpse of their company’s financial position. It helps them to make informed financial decisions based on current assets and future projections. They can determine whether they have more cash coming into the business (positive cash flow) than going out of the business (negative cash flow).
To prepare a cash flow forecast:
- Determine the objectives. Examples include debt reduction, short-term liquidity planning, and growth planning.
- Select a forecasting period. For example, you may need short-period, medium-period, long-period, or mixed-period.
- Choose a forecasting method. Consider indirect vs. direct forecasting methods.
- Gather relevant data. You will need the appropriate financial records and other information to forecast properly.
5. Hire a professional accountant or bookkeeper
Growing a business and managing its finances may be too much for one person (or even a small team) to handle. It is a good idea to offload accounting responsibilities to a professional even if it is on a part-time basis. Getting help from an accountant or bookkeeper can free up time for other activities that help your business growth such as updating your marketing strategies and nurturing client relationships.
Without a strong financial position, a small business may not survive – and certainly won’t reach its full potential. Proven finance and accounting practices can give businesses tools to handle financial emergencies and succeed in tough markets. By implementing these strategies, any company in any industry can set themselves up for success.