Congratulations, you’ve kicked off another fiscal year. Or depending on when you’re reading this, “uh-oh, time to get a grip on our business finances before year end.”
Whatever the case, it’s never the wrong time to reset and establish some financial management practices to assist with better cash flow, more consistent revenue, and more effective budgeting. Over the course of the year, there will be potential for receivables to fall through the cracks. At times, your customers’ offices will close, people will become difficult to contact, and collections could have some bumps in the road. Try these steps to ensure a more predictable year in spite of all the variables:
Keep up with your receivables.
Monitoring receivables daily is the best way to get paid. Find a financial management tool that helps you streamline invoice collections. This will remove the burden from you or your team by tracking which customers’ payments are due, and customer patterns that might indicate an upcoming issue. Now, you can reach out to customers as soon as they’re even one day late. Better yet, contact them before the payment is due to make sure everything is on track. Research has shown that sending proactive reminders to customers increases the likelihood of on-time payment. Staying ahead of collections is one of the most important financial commitments your business can make.
Use technology to stay organized.
Implementing a tool to easily manage and track your accounts receivable is helpful—especially at certain times of year, when employees who normally handle A/R may be taking time off and others may step in to pinch hit. Look for an app with a multi-user function so each employee who speaks with a customer can take detailed notes and log their actions on the account. This way, you ensure that you reach out to every customer in the appropriate way. There’s no duplication of effort or embarrassing calls to customers who’ve already paid their invoices.
Here’s your criteria for financial management technology: Find a platform that you find easy to use, and be sure it integrates with the tools you already depend on to run your business—accounting, payroll, expenses, customer relationship management (CRM), etc. This will help you see everything in one snapshot, and it will give you the complete picture you need to better serve your customers.
Assess your working capital needs.
Many companies have extra expenses at year’s end, such as employee bonuses, holiday parties, and client gifts. If you’re in a B2C business where most of your sales occur during the holidays, you’ll need plenty of working capital on hand to cover operating costs such as last-minute orders, paying overtime or hiring temporary employees. Make sure you know how your working capital needs will vary during the last few months of the year, or any other busy seasons that may be specific to your business.
For a golf course, that might mean extra cash for March 1 when the slow melts. For a cleaning service, it could mean budgeting for staff overtime before Thanksgiving. Your business is unique, and so are your needs for working capital. Prepare accordingly.
Monitor your cash flow.
To ensure you’ve got the cash you need on hand, review your cash flow often. Utilize all-in-one financial management tools that give you a quick glimpse across your banking portfolio. Look ahead to the future so you can foresee any potential problems or shortfalls and figure out how to avoid them. Closing out your year end finances are much easier if a little work is done each and every week.
Plan for next year.
Every small business owner deals with late-paying or non-paying customers at some point. Use your financial management tools to identify customers whose payment habits tend to be problematic. Then plan a better strategy for handling them this year—whether that’s requiring partial or full payment upfront, insisting upon payment on delivery or, in the worst case, ending your relationship with the client.