How do we effectively use cash?
This is a key question for a business to answer.
In the simplest terms, cash flow is the movement of money into and out of a company’s bank account. Positive cash flow means more is coming in than is leaving. Most small businesses have one trait in common – cash comes in and goes out of the bank account without too much thought.
When cash is plentiful, management can make short-term decisions that turn out to be a poor long-term strategy. Buying inventory that will not be used for a long period of time because a vendor is offering the deal of the year, or distributing cash out to the owners, can seem like a good idea at the time. But, cash outflows such as these remove liquidity from the business and strain business operations. More effective use of cash helps minimize the need to borrow money and reduces interest charges, an additional cash outflow.
In addition to "keeping the books," accountants can assist companies with valuable cash flow planning and budgeting.
Some common practices an accountant would suggest to improve cash flow in a business include:
- Working with customers to collect receivables faster.
- Offering discounts to faster paying customers.
- Moving towards just-in-time inventory and supplies purchasing.
- Reminding businesses that the longer an item is on the shelf or in inventory, the more difficult it is to move.
- Disposing of outdated and slow-moving stock that has built up on shelves or in inventory.
A business’s effective management of cash flow is a determining factor in its long-term success or failure. Using practices such as these can help businesses use cash flow to meet their business goals.
In the photo, Jamie Dunn, C.P.A. with Hodges, Jones & Mabry, emphasizes the importance of attention to cash flow.
Hodges, Jones & Mabry, P.C., Certified Public Accountants, is a financial and accounting service provider headquartered in Wytheville, Virginia with branch offices in Blacksburg, Virginia and Radford, Virginia. Hodges, Jones and Mabry, P.C. has successfully partnered with clients of all sizes and from varied industries, offering services to individuals, start-up businesses and established corporations. HJM has the knowledge and expertise to be a trusted financial partner.
Hodges, Jones & Mabry, P.C. is a client of Handshake Media, Incorporated, the parent company of Handshake 2.0.