The movement of cash in and out of your firm is called cash flow. Your cash flow is positive when you have more cash coming in than what is leaving your business. When your expenses are more than what you are earning, your cash flow is negative.
If you want your accounting firm to thrive, you need to manage the cash flow efficiently. Every firm would have unique issues, and, thus, resolutions may differ.
You may follow the below tips to manage cash flow for your accounting firm:
Table of Contents
- 1 – Specify your terms on your letter of engagement
- 2 – Engage senior staff in cash collection
- 3 – Manage expenses
- 4 – Use accounting software to monitor your cash flow
- 5 – Get a line of credit
- 6 – Ensure accurate invoicing
- 7 – Offer multiple payment options
- 8 – Ask for partial payments on long-term contracts
- 9 – Learn to spot the warning signs
– Specify your terms on your letter of engagement
Your accounting firm is entitled to receive payment for the services provided. You must, thus, specify clearly the terms and conditions of payment on the letter of engagement that you have with your clients. You may also review your firm’s current letter of engagement for any necessary amendments. If you do make amendments, make sure you notify your clients accordingly.
However, you may exert flexibility with clients with good payment history. For new clients and those who do not have a good track record of payment, you may ask for a prepayment.
Make sure that your clients agree and sign your letter of engagement before you start providing services.
– Engage senior staff in cash collection
Senior staff, especially those who have time to spare, must be given the added responsibility of cash collection. These employees can help with debt collection as well as identifying clients who are delaying payments due to financial difficulty. The circumstances of different clients may be different; your firm’s response needs to vary accordingly.
– Manage expenses
The fastest way of managing cash flow is to cut down expenses in all aspects of your business. Payroll, utilities, and rent are often the highest expenses while running an accounting practice. If you employ temporary workers, you may start by cutting down their numbers to reduce costs. Analyze and focus on different areas where there is a potential for reducing costs.
In extreme cases, you may want to reconsider staff wages. However, remember that good and experienced are scarce. Reducing the wages of such employees may force them to look for opportunities elsewhere, putting your firm in a staff crunch.
– Use accounting software to monitor your cash flow
Accounting software like QuickBooks and Xero can help business monitor and manage your cash flow regularly. The accounting software accurately records the flow of money and expenses. You can better analyze your revenue problems through the cash flow statement. You can also configure your software to send invoices directly to clients as they are generated. When invoices are sent before time, it tends to discourage late payments. It can also help you keep track of your accounts receivables. The software would show you the unpaid accounts so that you can focus your time and energy on collecting payments from these clients.
– Get a line of credit
A line of credit can give your firm a cash flow boost to pay salary and wages to your staff. It can act as an insurance policy against cash flow issues.
– Ensure accurate invoicing
When you complete the delivery of your services, make sure to send the invoices without delay. Find out the exact person to whom the invoices must be sent so that they do not end up in the wrong department. Make sure that your invoices are accurate. Invoices should have necessary information like amount due, due date, and payment method clearly highlighted.
Inaccurate invoicing is the leading cause of disputes which leads to delayed payments and poor cash flow management. Quicken the payment process by emailing invoices instead of mailing them.
– Offer multiple payment options
When you offer multiple payment options to your clients, there are lesser chances of delayed payments. Clients can choose their preferred payment method and pay their dues instead of delaying the payment.
– Ask for partial payments on long-term contracts
For long-term contracts, you may ask for a deposit or partial payment to keep a positive cash flow at your accounting firm.
– Learn to spot the warning signs
Use or accounting software or spreadsheets to generate period financial reports to understand the cash flow of your firm. It is important to spot warning signs early on so that you can mitigate the cash flow problems that may arise later on. Analyzing the financial reports from time to time can help you understand patterns in client behavior and also prevent undue expenses.
The key to business success is staying on top of your cash flow. Poor cash flow management or even a few missteps can put your firm in a severe financial crunch. All it takes are a few smart moves to keep your accounting firm on track.
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