Effective cash flow and payroll processing are crucial for small business success. Your cash flow is the money that moves in and out of your business. This includes income from customers buying your products or services, and expenses such as rent, taxes and wages. A business with positive cash flow is making more money than they are spending. On the other hand, a business with negative cash flow has more cash going out than they have coming in.
Cash flow is a relatively simple concept, but one that must be taken seriously. We’re exploring the importance of cash flow and payroll processing for small businesses, and how efficient workflows can help.
Why Is Cash Flow Important?
One of the main reasons that small businesses fail is a lack of cash. Running out of money is sure to shut down your business very quickly but managing your cash flow can help to avoid this. If you find yourself in negative cash flow, then it can result in your staff going unpaid, suppliers demanding payment and landlords changing the locks.
It is vital that you manage your cash flow in order to avoid these situations. Cash flow management requires a reliable business forecast, so you can plan ahead and make sure your business is moving in the right direction. Your business will have regular bills that need paying every month, such as payroll, rent, suppliers and materials. You can only pay these if you have the cash in the bank to do so.
Small businesses with a strong sales pipeline and lots of new enquiries will look great in theory, but theoretical money won’t pay the bills. You need to ensure these enquiries and sales drive money into your bank account, in time for your expenses to go out. This is when cash flow management is essential because it clarifies when money needs to be paid out, and when you have money coming in.
Why Is Payroll Processing Important?
Cash flow and payroll processing go hand in hand. Because staff costs and wages are often the biggest expenses for a small business, effective payroll processing is essential for good cash flow. Processing payroll is a complex and time-consuming task. It takes a lot of time and effort to process each payment, expense, deduction and bonus for every employee.
Having an effective workflow in place to help manage payroll is essential for overall cash flow. Not only that, but efficient payroll processing will make it clear how much you are paying out in staff costs each month, helping you to better understand your cash flow.
How Can Efficient Workflows Help With Cash Flow?
One of the most effective ways of improving cash flow management is to have efficient workflows in place. A solid workflow will help you clearly see every aspect of your business, including contracts, documents and order fulfilment information. Business Workflow Software solutions can help you to manage every process within your business.
You can use workflow software to design processes which help your business run smoothly, and clearly see the status of all your outstanding tasks. This can help you understand when a task will be completed, and more importantly when an invoice might be paid. When all aspects of your business are managed in one place, you can quickly see reports and metrics about your business performance and cash flow.
Top Tips For Improving Cash Flow
As well as having efficient workflows in place, there are a few other ways you can improve your cash flow;
Combat Seasonality: No matter your industry, your small business will have fluctuating income and expenditure. If your company is affected by seasonality, it can wreak havoc with your cash flow. You can combat seasonality to help improve cash flow by preparing for quieter times with cash savings or diversifying your offering.
Create A Debt Chasing Procedure: Debt is one of the biggest threats to small businesses, and debt recovery is vital for good cash flow. Establish a structure or workflow for your debt chasing procedure, such as follow up calls and reissuing invoices.
Ensure Your Invoices Are Accurate: One of the main reasons that invoices are not paid on time is poor administration and invoice queries. It sounds simple, but make sure you get the basics correct on your invoice before sending it out. If a customer has to come back and query an invoice, it will only add to the time it takes them to pay and impact your cash flow.