Small business accounting tips to improve cashflow

For a small or medium enterprise, managing finances efficiently is one of the keys not only to survival, but to prosperity, so here are some tips for improving your small business accounting.

Maintain finances regularly 

Letting your money take care of itself guarantees trouble. To better understand where your money is going (expenses), where it is coming from (revenue) and what that leaves you with (profit or loss), manage your accounts on a regular basis.

Employ a bookkeeper 

A bookkeeper will keep your business on top of the day-to-day payment of bills, issuing of invoices, chasing debts, cash management and record keeping. This is essential for submitting accurate forms to the government. It also frees you up to focus on the big picture.

Software versus paper 

Software wins this battle every time. Buying off-the-shelf accounting software like MYOB or Quicken improves efficiency and helps you manage financial complexity. In other words, it ticks boxes you might otherwise forget.

Prepare a budget

Think of a budget as a map for your money. With it you can track expenses and income and identify where cash flow needs improvement. A budget is also ideal for comparing projections with actual performance. Do it monthly or for the year ahead.

Know your break-even point 

How much revenue do you need to meet your monthly expenses? Does that include your own wage, employee superannuation, utility bills and marketing expenses? Do you know your break-even point for each product you sell? Knowing this helps you plan for profitability.

Invoice early, pay as late as possible

Money is better off in your account than someone else’s. Send an invoice with goods, and pay invoices right on deadline. Consider incentives for early payment of your invoices and chase up unpaid invoices promptly.

Maintain a cash buffer

If possible, keep a cash buffer in the bank for unforeseeable drops in revenue. Sometimes clients have trouble paying bills or demand drops unexpectedly. If you have cash to cover a period of diminished revenue, you can ride out financial shocks.

Know your tax obligations

Tax is a complicated area. Employ an accountant to advise on tax matters (depreciation, tax minimisation, deductions, reporting requirements) and to help prepare your Business Activity Statements.

Bill big contracts progressively

If one customer consumes a majority of your resources, don’t wait until project completion to bill them. Negotiate a progressive payment schedule to balance out your cash flow.

Simplicity is your friend

The less complicated your accounting system, the less likely something will go wrong. Ask for professional advice in tailoring an accounting system for your business.

Need more advice?

Contact an accountant today to find out how you can improve your small business accounting systems, save money and enhance your cash flow.