Cash flow management is a critical component of running a successful small or medium sized business, not just in New Zealand but across the world.
From monitoring incoming and outflowing cash, optimising the use of working capital and analysing potential funding options, effective cash flow management ensures that your business can operate and grow as needed.
An essential aspect of any effective cash flow management is ensuring that you have the tools to trade solvently, are able to take advantage of market opportunities to grow and can weather financial challenges.
What is Cash Flow Management?
In its most simplistic form, cash flow management is the process of tracking the money that comes in and goes out of a business. It involves monitoring revenue, expenses and keeping tabs on liquid assets so short term obligations can be met.
Without managing your cash flow, it can be difficult to ensure that you have enough working capital to cover expenses. Negative cash flow, i.e., generating less money than you are spending, can indicate financial problems or the need for funding solutions.
Why does it matter?
Without proper cash flow management, it can be near impossible to operate confidently knowing your day-to-day operating expenses are covered and business operations can continue as normal.
Even the most robust growth strategies sometimes require financial flexibility to seize opportunities presented by the market. Effective cash flow management can ensure you have the working capital available to expand your product line, enter a new market, invest in emerging technology to maintain or expand your competitive advantage and fuel ongoing growth.
Maintaining healthy cash flow can help your business manage and reduce debt. With timely, consistent payments, not only will your debt erode over time, but you’ll be actively improving your creditworthiness allowing you to access better financing terms moving forwards.
Uncertain economic times, geopolitical shockwaves and even global pandemics can all make for stressful business management. With an effective cash flow management strategy, your business can be best positioned to navigate the murky waters of uncertain market conditions.
Cash Flow Management Tools
In the modern market, businesses of all sizes use cash flow management tools, in the form of software programs in most instances, to streamline their capital management activities and ensure positive cash flow.
We’ve categorised the different types of management tools to help you find out which one (or ones) are right for you.
1. Accounting Software
Accounting programs have become more and more sophisticated whilst also becoming more and more accessible.
Tools such as Xero, MYOB and QuickBooks assist business owners with their financial processes. From tracking income and expenses to generating accurate and comprehensive real-time financial reports, having strong accounting software is important for the long-term success of a growing business.
2. Forecasting Tools
While a significant component of cash flow management is understanding where and how much cash is currently coming and out of a business, being able to forecast future access to working capital can help make informed, beneficial business decisions today.
Tools, such as Float or Futrli, assist businesses in creating accurate cash flow forecasts. The many features of these programs allow future cash inflows and outflows to be predicted by analysing historical data and past business performance.
3. Invoice and Payment Tracking
Many of the other tools in this list can also assist with invoice and payment tracking, but if you’re looking to simply automate the processes, there are a variety of specific tools that focus on just offering invoicing, payment tracking and overdue invoice reminders.
Timely, efficient and accurate accounts receivable is self-evidently important for ensuring ongoing cash flow management.
4. Expense Management Software
On the other side of the ledger, expense management software allows expenses to be automatically tracked. This streamlined bookkeeping allows your reimbursement process or tax claiming activities to be more organised and seamless, and it provides you with better control and insight into your business expenditures.
Part of scalable growth for a business is managing expenses as well as increasing revenue, so having reliable expense management software is a must.
5. Financial Dashboards
Financial dashboards are a visual cash flow management tool that enables business owners to easily review the totality of their company’s financial data. The visualised graphs, tables and information makes it easier to identify trends, spot anomalies and make key strategic decisions for improvement and greater profit.
6. Banking Apps
Most banks nowadays utilise one form of mobile banking or the other. While the different apps vary, most allow business owners to monitor transactions and view accounts in real time. Low balance alerts can be set and quick transfers can be facilitated easily when needed with just a few taps.
How ScotPac Leverages Technology to Fuel Your Business
The lending specialists at ScotPac leverage tech-enabled experiences to help provide the fuel our clients need to expand their business. We’re constantly evolving, transforming and improving our financial services to increase the speed with which we are able to help our clients access the facilities they need to better manage their cash flow.
If you’re looking for additional support with your cash flow management, or would like a consultation on the different working capital solutions available for your business, make sure to reach out to the ScotPac team today.