Saturday, 1st December 2018 | Accounting
Do’s and don’ts for managing cash flow
You may have heard the saying, “Cash is king.” It’s often used in reference to personal finance, but cash is essential for small businesses, too.. Without adequate cash on hand, you may find yourself in a crunch when it comes to paying suppliers, restocking on inventory, fulfilling a large order or even taking on new customers. Align yourself with these best practices to ensure your small business stays on top of cash flow.
You may have heard the saying, “Cash is king.” It’s often used in reference to personal finance, but cash is essential for small businesses, too. Building a reserve will help you to finance your business’ growing needs, and also acts as a cushion for unexpected expenses. Without adequate cash on hand, you may find yourself in a crunch when it comes to paying suppliers, restocking on inventory, fulfilling a large order or even taking on new customers. Instead, position yourself one step ahead. Align yourself with these best practices to ensure your small business stays on top of cash flow.
The basics of understanding your cash flow
Before we dive into strategies for managing cash flow, it’s important to understand the cash flow basics. In simplest terms, cash flow involves how funds move in and out of your business. It can be measured weekly, month-to-month or even quarterly, depending on your business type and size.
Positive cash flow takes place when the incoming cash from sales and receivables is greater than the amount outgoing into expenses, salaries and other payables. A negative cash flow is essentially the other way around: when your outgoing cash exceeds the amount of your incoming cash.
Getting a grip on your cash flow involves more than profits and losses. Even the most profitable businesses could be short on cash. Your first step towards better control involves understanding how much working capital your business needs. To do this, you have to consider the inventory levels you need to maintain, recurring invoice amounts and the life cycle of your product or service. Anticipating how much capital you need, and when, plays a big part in staying in control of your cash.
Speed up your receivables process
No business owner likes late payments. While you can’t always control late payments, sending out clear and detailed invoices as they occur (instead of monthly) can go a long way to getting your cash quicker.
Do: Implement progressive invoicing. Depending on your industry, it might take weeks or months to complete a job. In this case, waiting until the end to submit an invoice can cause major cash flow challenges. Instead, consider a progressive invoicing plan. This ensures you get money throughout the process by asking your customer for a deposit upfront, in addition to regular payments at mutually agreed-upon project milestones. The added benefit is it reduces your risk exposure to customers not paying.
Don’t: Forget to follow up. Just because you sent out your invoices doesn’t mean the money will always magically appear. Unfortunately, overdue and neglected payments will require follow up. Schedule one or two days a month to follow up on invoices. This is a simple way to ensure you stay on top of your receivables to prevent cash losses.
Recover funds from your assets
Does your business own equipment that is no longer used? Or, have you replaced equipment and neglected to get rid of the old pieces? Selling these items can generate cash quickly and free up capital that can be better allocated elsewhere in the business.
Do: Sell inventory or equipment that’s obsolete. If you don’t have plans for these items over the next 12 months, put them up for sale. You’ll feel a lot freer without them weighing you down, and you’ll likely gain extra physical space onsite.
Don’t: Neglect to report the sale. The sale of these items could result in a taxable gain if the book value is equal or less than its salvage value. This should be reported on your taxes. If your items are sold below book value, the loss can be used to offset other company profits.
Maintain good books year round
Great bookkeeping practices are key to keeping your small business thriving. Ill-managed finances can cause a host of problems, including poor cash flow.
Do: Hire a professional accountant or bookkeeper. As a small-business owner, you’re almost certainly too busy to moonlight as an accountant. Couple that with the fact that you may not be an accounting aficionado, and you’ll see why it makes the most sense to hire a professional to manage your books year round—not just during tax season. While they’re at it, they may be able to suggest business improvements and areas of cost savings, which will can amplify your cash on hand.
Don’t: Turn a blind eye to your books. Just because you’ve outsourced your bookkeeping doesn’t mean you can completely turn a blind eye to your balance sheets. Schedule time to regularly review your reports and understand what’s happening (and why). Ask questions of your accountant/bookkeeper, and ensure you understand the basics of your business’ fiscal health.
Separate personal and business finances
Monitoring your business’ performance and anticipating changes can help you to understand—and even forecast—your cash flow. It can be messy to monitor and difficult to anticipate changes when your personal transactions are mixed in.
Do: Separate your banking. Creating a business chequing account and applying for a business credit card are your first steps. Deposit income and pay your business expenses from these accounts only so that your business’ cash remains in one central location. Some small-business owners may even keep their finances separated at two different banking institutions so there’s absolutely no confusion among accounts.
Don’t: Neglect to pay your own salary. Each month, write yourself a cheque or send yourself an e-transfer to pay your own salary. This will help you stay on top of cash flow and budget wages among all your staff (yourself included). Make deposits from your business account to your personal account for your salary only, and ensure the paid amount is consistent from month to month. Waiting until year end to pay yourself, or only deducting a salary when you need it, is a poor practice that will result in dramatic ebbs and flows in your business’ cash supply.
Managing your cash flow and building an adequate reserve will strengthen your business’ overall health. If you’re not already ahead of the curve, you may have to endure a few set-backs before you have a cushion of cash. But it’s well worth it; in the end you’ll have positioned your business on a path towards success.
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Venturing into Artificial Intelligence (AI) may seem like treading uncharted waters, but it's an opportunity for small businesses to revolutionize marketing strategies and spark growth. Much like the buzz surrounding ChatGPT, AI tools offer myriad capabilities, ranging from task automation to personalized customer experiences. In fact, research shows that 39% of small businesses have already invested in AI tools to innovate their customer engagement and retention strategies, leveraging AI to save both time and money.
Unlocking the Power of AI Tools
AI tools span a wide spectrum of applications to streamline processes, analyze data, and optimize marketing campaigns. Let's explore some key AI tools commonly embraced in small business marketing:
Data analysis
AI-powered analytics programs sift through vast volumes of marketing data, distilling valuable insights and trends that inform strategic decisions and fuel campaign optimization. This enhances efficiency and facilitates cost savings, with 25% of businesses using these savings to increase wages and benefits.
Natural Language Processing (NLP)
NLP technology empowers chatbots and virtual assistants to engage customers in natural conversations, enriching customer service and sales interactions.
Automated decision-making
AI algorithms offer actionable recommendations, guiding marketing strategy decisions to ensure resource allocation aligns with business objectives and budget constraints.
Content generation
AI-driven tools churn out written content, such as blog posts and social media captions, at scale, freeing up time for creative endeavours while maintaining quality and consistency.
Real-time personalization
Leveraging customer data, AI enables personalized marketing experiences by delivering tailored recommendations and offers, thereby enhancing engagement and driving conversions.
Leveraging AI for Marketing Success
Incorporating AI tools into the marketing toolkit can yield substantial benefits for small businesses. Here's a roadmap to harnessing AI for marketing success:
Harness data insights
Utilize AI analytics platforms to extract actionable insights from marketing data, empowering informed decision-making and continuous optimization.
Elevate customer engagement
Deploy AI-powered chatbots and virtual assistants to provide personalized customer experiences, fostering satisfaction and loyalty.
Make informed choices
Rely on AI-driven recommendations to shape marketing strategy, ensuring alignment with business objectives and market dynamics.
Streamline content creation
Utilize AI content generation tools to produce high-quality written content efficiently, maintaining relevance and resonance with the audience.
Deliver tailored experiences
Leverage AI to deliver real-time personalized marketing messages and offers, nurturing deeper connections and driving conversions.
Designing an AI Marketing Strategy
Designing an effective AI marketing strategy requires careful planning and strategic execution. Here's how to do it:
Identify Business Requirements
Assess business needs and objectives to determine how AI can support marketing goals.
Decide AI Framework
Choose AI tools and technologies that align with business requirements and budget constraints.
The Right Approach
Adopt a strategic approach to implementing AI in the marketing strategy, focusing on areas where it can deliver the most significant impact.
Evolve
Continuously monitor and refine the AI marketing strategy to adapt to changing market dynamics and emerging trends.
By embracing the power of AI, small businesses can unlock new avenues for growth and competitiveness in the ever-evolving digital landscape. With careful planning and strategic implementation, AI can be a game-changer for small business marketing, driving engagement, loyalty, and business success. So, let's embark on this exciting journey together and seize the opportunities that AI has to offer.
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Cybersecurity Strategies for Small Businesses
As we embark on a new year, the ever-evolving digital landscape presents opportunities and challenges. In 2024, one of the paramount challenges demanding attention is the persistent threat of cyber attacks.
Safeguarding your business against these threats is not just advisable—it's imperative. Let's explore the crucial cybersecurity strategies every small business should adopt for a secure and prosperous journey throughout 2024.
Understanding the Landscape
The IBC’s 2023 Cyber Security Survey revealed a concerning trend among small businesses. Despite over 60% considering their size immune to cybercriminal attention, small businesses with 1,000 or fewer employees experienced a surprising 43% of yearly cyber attacks in 2023.
Crucial Cybersecurity Strategies for Small Businesses
Educate Your Team
Empowering your team with effective cyber threat identification skills is essential. Regular training sessions can equip them to recognize phishing emails, use strong passwords, and identify potential security risks. A well-informed team serves as the first line of defence against cyber adversaries.
Ensure your training addresses these common security issues:
1. Phishing attacks: Deceptive tactics to trick victims into sharing sensitive information or deploying harmful software.
2. Malware attacks: Cyber threats involving malicious software executing unauthorized actions.
3. Ransomware: Malicious software designed to deny access to files, demanding a ransom for decryption.
Employee Training and Awareness Programs
Acknowledge that your employees are not just integral to your business—they are the first line of defence against cyber threats. Regular training and awareness programs inform your team about the latest cyber threats and preventive measures. Cultivate a culture of cybersecurity awareness where every team member actively contributes to the protection of your business.
Strengthening Your Digital Shield
Crafting an impenetrable shield for your small business involves developing good cybersecurity habits through daily practices:
1. Regular Software Updates: Keep all software, including operating systems and security applications, up-to-date to patch vulnerabilities.
2. Security Audits: Conduct routine security audits to identify and rectify potential weaknesses in your systems.
3. Password Policies: Enforce strong password policies, promoting the use of complex, unique passwords.
4. Require long, varied passwords for sensitive accounts.
5. Enable two-factor authentication for added security.
Invest in Cybersecurity Technology
As cyber threats advance, upgrading defences is crucial. Invest in state-of-the-art cybersecurity tools like antivirus software, firewalls, and intrusion detection systems to serve as your digital guardians, actively monitoring and thwarting potential threats.
Proactive Preparedness
Craft a comprehensive incident response plan that includes:
1. Communication Protocols: Clearly define communication channels during a cyber incident.
2. Data Backup Strategies: Regularly back up critical data to minimize the impact of potential data loss.
3. Mitigation Steps: Establish procedures to mitigate potential damage during and after a cyberattack.
The Stakes Are High
In 2023, small businesses accounted for a significant portion of annual cyber attacks, emphasizing the need to view cybersecurity not as an expense but as an investment. Cybersecurity is not a luxury—it's a prerequisite for sustainable success. As you navigate the intricate web of business operations in 2024, remember that a secure foundation is key to achieving your goals. Despite the challenges in the digital realm, informed decisions and proactive measures can help your business emerge stronger and more resilient than ever.
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The Top 10 Small Business Trends for 2024
As small business owners, anticipating the shifts that shape success is always on your agenda. In the ever-changing business landscape of 2024, specific trends will be crucial to staying relevant and thriving. Let's recap the top 10 trends that should be on your radar for the coming year:
1. Tech Integration for Maximum Efficiency:
Small businesses are unlocking the power of technology to streamline operations. From intuitive software to smart automation tools, embracing these innovations can enhance efficiency, trim costs, and keep you at the forefront of your industry.
2. Sustainability and Climate Change:
Sustainability is not just a buzzword; it's a game-changer. Small businesses are discovering the benefits of eco-friendly practices, not only for the environment but also for their bottom line. Going green can set you apart and resonate with conscious consumers.
3. Flexible Work Models:
The 9-to-5 office setup is evolving. Small businesses are embracing flexible work arrangements—remote work, flexible hours, and hybrid models—opening doors to a global talent pool while fostering a healthier work-life balance for your team.
Related: A shortened workweek: fad or the future of work?
4. Personalized Customer Experiences:
In an era where personalization reigns supreme, small businesses are customizing customer experiences. From targeted marketing to personalized products and services, understanding and meeting individual customer needs are keys to success.
5. Continued Growth of E-commerce:
E-commerce is not slowing down. Small businesses are seizing the opportunity to reach a broader audience, implement targeted marketing, and offer convenient purchasing options. Investing in a robust online presence is no longer a choice—it's a necessity.
6. Prioritizing Mental Health and Well-being:
A healthy work environment is essential. Small businesses are putting employee well-being first, introducing initiatives like employee assistance programs, flexible schedules, and wellness benefits to create a thriving and productive workforce.
7. Digital Marketing, Content Creation, and Artificial Intelligence (AI):
Stay ahead in the digital era by creating valuable content, engaging with customers through social media, and implementing SEO strategies. Integrate AI to streamline content creation processes, adding a layer of innovation to your marketing strategy.
Related Article: 7 ways how AI empowers small businesses to achieve more in less time
8. Cybersecurity and Data Protection:
In the digital age, safeguarding your business is crucial. Invest in strong cybersecurity to protect sensitive data and maintain customer trust. Shockingly, small businesses, including those with 1,000 or fewer employees, account for 43% of annual cyber attacks in 2023. This data underscores the need for comprehensive cybersecurity strategies to fortify your defence against potential threats.
9. Innovative Payment Solutions:
How we pay is evolving, and your business should evolve with it. Consider offering various payment options, including mobile wallets and contactless payments, to cater to diverse customer preferences.
10. Agile Business Models:
Agility is the cornerstone of success in 2024. Be responsive to market changes, adapt swiftly to challenges, and capitalize on emerging opportunities. Flexibility in operations and decision-making will give your business a competitive edge.
Incorporating these trends into your business strategy isn't just smart; it's the key to staying relevant and successful. Keep these considerations in mind as you navigate the dynamic landscape of 2024.
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