In other words: make sure more money is coming in than going out.

It sounds easy, but there are several factors at play. In this post, we boil down 5 key components that affect the timing of your cash inflows and outflows. In part 2, we’ll offer up suggestions for improving your cash flow.

Five factors that affect your cash flow timing

1. Collection of accounts receivable (AR)

An AR represents cash tied up that could have been used to run and grow the business.

Check the age of your receivables. If it’s taking longer to receive payment than your credit terms allow, you’re heading for trouble. Keep on top of this.

2. Credit terms and trade discounts

Avoid giving longer credit terms to your customers than your suppliers give to you.

Trade Discounts can incentivize your customers to pay quicker, but should be used with caution. They require a delicate balance between offering a discount amount (percentage of sale or fixed amount) that is meaningful to your customers while still maintaining a healthy profit margin for you.

3. Enforcement of credit policy

A Credit Policy ensures cash is available when you need it – but you must be prepared to enforce it. This means applying discounts as outlined, charging penalties on late payments and calling your customers when payments are overdue.

4. Purchase and sale of inventory

Having too much inventory affects your cash flow as, again, that is cash tied up with unsold merchandise. Monitor how much inventory you have and select inventory that sells.

5. Repayment of accounts payable

Your Accounts Payable schedule should be in line with your credit terms. Stretch payments on your payables until they’re due (but not overdue).

Some business owners are reluctant to keep track of accounts payable. The cash flow gains, however, can be enormous. That way you can use your cash for other immediate needs. In general, collect your cash faster than you are required to pay your bills.

Having a projected Cash Flow Statement — and comparing actual cash flow to it — is a critical way of managing and improving your cash flow. Projections help you prepare in advance for future cash demands.

Other Resources to Further Your Financial Knowledge

“Financial Fitness” is one of our most popular training series, and now it’s available On-Demand! Part of our SMART Program series, these free courses are designed to help you understand key concepts, work through interactive case studies and complete activities that apply the learning to your own business. Learn more >>>

The post It’s All in the Timing: 5 Factors that Impact Your Cash flow appeared first on WeBC.

Join a representative from Loren Nancke Chartered Professional Accountants and learn accounting essentials, responsibilities and dates involved with managing a small business. You’ll discover the deductions available to you, the tax benefits of each structure and discuss when it’s time for your small business to incorporate.

What Will I Learn?

• The differences between sole proprietorships, partnerships and corporations
• The tax implications of each structure
• What the CRA considers taxable income
• Hiring subcontractors versus employees
• Situations where you can claim tax deductions on automobile or home office costs
• The different financial statements and information required in each

Register: https://smallbusinessbc.ca/education/taxsense-for-small-business-2022-10-27

The post Taxsense for Small Business appeared first on WeBC.

What are the top 3 reports every business owner should review every month?

In my many years of working with business owners, and as a business owner myself, we tend to put a lot of emphasis on entering and recording transactions, or bookkeeping.

We want to keep on top of the day-to-day to tame the paper and transactional clutter, but we don’t put the same level of intensity on analyzing what the recorded transactions mean. Consistent bookkeeping is crucial in providing quality data on which to make financial decisions.

So, what are the top three reports every business owner should review at least every month?

1. Cashflow Analysis

Cash is King.

We strive to have more cash inflows than cash outflows or positive cashflow. This means the amount of cash we pay for expenses should be less than sales cash inflows.

In businesses where sales receipts do not always happen at the time of the sale, or when payments do not happen at the same time of the expense, timing becomes a variable we need to keep in mind.

Bonus Reports!

If your bookkeeper, accountant, or accounting software allows, you can also ask to review aged accounts receivable and aged accounts payable to analyze cashflow timing.

(We go into detail on how to manage cashflows in our WEC Week 1 Financial Fitness Webinar Series and show how to build a cashflow analysis.)

2. Income Statement

An income statement is a very typical report any accounting software, your bookkeeper or accountant can generate very easily after all the bookkeeping has been recorded.

The income statement, sometimes called a Profit & Loss statement, can be seen as a report card for the business because it shows the sales and the expenses of the business that happened in a specific period.

The income statement can be done over the same period of times like a cashflow analysis which are typically monthly, quarterly, and annually.

3. Budget vs. Actual

This third report will require you to have a budget to start.

Your business budget can be done on an annual basis and then divided by 12 or 4 to get monthly budgets or a quarterly budget.

The budget is a great way to set expectations about what you expect your business to do from a revenue and expenses perspective or cashflow perspective.

By comparing your budget expectations and the actual results, you can analyze how your business is faring and course correct as required. Many business owners still do this in their heads, on a back of a napkin or in Excel.

With the advancement of accounting software and tools, many accounting programs can report budget vs. actuals quite easily.

Heard of The Pareto principle or 80/20 rule?

Where Finance is concerned, many business owners spend 80% of their time on recording and creating financial transactions and are only left with 20% of time and resources to analyze the implications of the financial data created in the reports above.

Accounting professionals, software and integration applications can help business owners flip the principle, so that 20% of efforts are used to bookkeep and 80% of time and resources can be used to analyze and make financial decisions that can impact your business favourably.

The post Fin Fit Tip: 3 Reports All Business Owners Should Review Monthly appeared first on WeBC.