Every company in the world, no matter what specific line of work it's in, is united by one common goal - to make a steady profit. The goal in business is to allocate your spending wisely, bring in revenue and hope the latter amount outweighs the former. If you can keep your company in the black year after year, it's clear that you're doing something right.
Money is always moving into your business and out, and it's hard to get a clear snapshot of where you stand.
It's not always easy, however, to look at the numbers and quickly size them up to determine whether you're making a profit or not. At the typical place of business, things are always in flux. Money is always moving around - both into your business and out - and it's hard to get a clear snapshot of where you stand.
Essentially, what this means is your company needs two different kinds of balance sheets. One should show the expenses you're paying out and the revenues you take in, and the other should spell out the specifics of when and how all that cash is collected.
Bringing clarity to the balance sheet
Every company needs to have a balance sheet listing its expenses and revenues. After all, without this basic information, it would be impossible to gauge the overall financial health of your business. You need to look at the money moving in and out to ensure you're making a steady profit.
Unfortunately, the challenge doesn't end there. An additional problem is the fact that not all of your debts will be paid on the same schedule, and there's always the chance that you run into trouble with cash flow. That's why, according to the Victoria State Government, it's wise to have an additional balance sheet that shows when funds will be moving in and out of your accounts during each set time period.
With this information in hand, you can calculate not just your company's net profit, but its net operating cash flow as well. If the amount of cash you're taking in is less than the net profit on your original balance sheet, that means you're not collecting cash at the same rate you're paying it out. This could potentially grow into a larger problem.
Turning unpaid invoices into paid ones
There are fewer things in business more stressful than staring at a pile of unpaid invoices on your desk. An invoice might represent the promise of revenue, but until you can get customers to pay up, it's not worth the paper it's printed on.
According to The Guardian, one way to tighten things up in this area is to put clear payment terms into effect. If you require that customers pay you what they owe within a set time frame, it's much easier to coordinate money matters.
"If you don't start off knowing what your payment terms are, it is difficult to know when you are going to get paid," said Suzannah Nichol, chief executive at the National Specialist Construction Council. "If you don't know when a payment is overdue, how are you going to manage your cash flow?"
Come up with a set time frame for collecting debts - for example, 30 days - and stick to it. You'll be happy you did.
Having a reliable source of funding ready
Unfortunately, sometimes all the rules and frameworks in the world aren't enough to ensure smooth cash flow. When customers aren't paying what they owe, it can seriously constrain your company's ability to invest in other areas of your business. If this looks like a problem for you, it's time to find a backup plan - namely, invoice finance.
With invoice finance, you no longer have to worry about payment terms. People might take 30 days to pay you the debts they owe, or they might take 60 or more. Either way, you can get the cash your company needs in a quick and painless fashion. You can then use it to keep your business running and get more sales trickling in.