KPMG Spark Blog
Maintaining a healthy business cash flow is one of the most important building blocks for any business. Continue reading for a few best practices for ensuring your organization has enough cash on hand.
Maintaining a healthy business cash flow is one of the most important building blocks for any business. In times of economic uncertainty, when smart cash flow management can often be the deciding factor between businesses that flourish or perish, it is especially vital. Managing cash is important, but creating a system for business cash flow is much easier said than done.
Maintaining cash flow helps you have the money available to pay expenses, reinvest in the business, acquire inventory, pay debts, and weather unforeseen financial challenges.
Here are a few best practices for ensuring your organization has enough cash on hand.
Pay close attention to key performance indicators (KPIs) like:
o Daily cash balances
o Net cash position (Cash balances – current liabilities)
o Quick ratio (Current assets – Inventory / Current liabilities)
o Days sales outstanding (Accounts Receivable / Net Credit Sales x Number of Days)
KPMG Spark’s accounting dashboard includes much of the data needed to calculate these KPIs, making it easy to monitor your business's cash position.
A rolling 12-month cash flow forecast can help you predict months in which you’re likely to experience a cash surplus or a cash shortage. By predicting cash shortages, you can plan for them by saving more when you’re flash with cash, stepping up receivables collection efforts, or establishing a line of credit with your bank.
When your sales are tied up in receivables, you can be short on cash even though revenues are good. Consider offering clients a discount if they pay in full within a limited time. A small discount, such as 2% if the invoice is paid within ten days, may be a small price to pay when you need access to cash.
Remember, profits and cash flow aren’t one and the same. Allowing your customers to pay on credit makes it easier for customers to do business with you and encourages larger purchases. But that lag between when you make a sale and when a customer pays you can make maintaining a positive cash flow tricky. Monitoring your cash flow, creating cash projections, and building up some cash reserves help you have the cash available to keep your business on solid financial ground. For more information on Managing Cash Flow in 2021, check out our blog.
Generating a cash-flow forecast that can guide decision-making is made much easier with real-time bookkeeping—which means that your financial information is current and not lagging weeks or months behind. To learn more about our bookkeeping services and managed accounting, click here or call 1-855-777-7696 to speak with a KPMG Specialist.
The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG LLP.
This blog article is not intended to address or provide advice concerning the specific circumstances of any particular individual or entity and does not constitute an endorsement of any entity or its products or services.
Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities.
The following information is not intended to be “written advice concerning one or more Federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.
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