Managing cash is just as essential to your company’s success as your operations are.
Without strategies for managing your income and expenses, your business is doomed to fail. But if you control your finances you control the destiny of your company.
Businesses that focus on cash management have the ability to withstand market fluctuations and are agile enough to capitalize on every sound growth opportunity.
The first essential in controlling your finances is knowing where the money is.
#1) Create Benchmarks with Accurate Reporting
There should never be surprises when it comes to the financial viability of your business.
Creating forecasting benchmarks on a weekly, monthly, and quarterly basis allows you to measure performance before it is too late.
Further, accurate financial reporting is essential. You should invest in the most transparent tools for seeing costs and income in real time.
Without accurate reporting, you will always be second guessing where you are. It’s like trying to make it through the woods with a faulty compass.
But accurate reporting and clear benchmarks will keep you on track and allow you to make adjustments as need be.
In some cases, expert support is required to track every aspect of your finances.
#2) Get Expert Support
Depending on the size of your organization you need a Chief Financial Officer supervising the cash flow of your company.
In today’s marketplace, cash is still king and your support structure needs the expertise of someone who can manage all facets of financial management to keep your company agile.
For some small to medium sized businesses that require this support but don’t have the means to create a full-time salaried position, a Fractional CFO is often the best bet.
These companies get the benefit of an expert executive skill set without the same salary and burden issues.
And one of the best ways to control your finances as a large company is to reduce burden and overhead whenever possible.
#3) Reduce Overhead Through Outsourcing
All managers know that one of the biggest expenses is labor and overhead in large organizations. Your support structure can grow unwieldy or outmatch your client base.
Keeping your organization agile without the heavy burdens of overheads means outsourcing tasks that aren’t part of your core competencies.
Outsourcing for freelance labor is a trend that is growing in every market sector. This helps companies get support when they need it and not have the costs of carrying labor burdens during varying business cycles.
70 percent of businesses expect to grow their external workforce in the near term.
The reason is clear. With an external workforce, you have immediate control over your finances.
#4) Reduce Time for Receivables
So much of financial management is centered around Return on Investment (ROI). We calculate the payback on marketing strategies, hiring trends, capital expenditures, market expansion, and new product lines to a fine decimal point.
But when it comes to the basic necessities of business we often miss the opportunity for a high ROI.
Reducing your time for accounts receivable can revolutionize cash flow and the profitability of your business.
Improving reconciliation of receivables reduces operational costs dramatically. Your organization is likely spending too much in collections.
And you are likely paying too much interest on your operating cash.
Service companies that can negotiate prepay for contracts are so far ahead of the game they are paying their bills with other people’s money.
#5) Consider Pay When Paid
If you can’t negotiate prepay for your service contracts, large organizations try to implement contracts that are provisional based on payment. They pay their vendors and service providers once the customer pays them.
There are a number of benefits to this arrangement. The first is the clear impact to cash flow.
You won’t be paying interest to a lender if you pay your bills when you get paid.
Also, this creates a level of transparency between your service structure and your customers. Your clients will realize that their payments have a domino effect and need to be handled promptly.
Further, your vendors and service providers will be assisting with the accounts receivable process should invoices move past 30, 60, and 90-days.
Your accounts receivable team can remain lean, resulting in less overhead.
#6) Tie Incentives to Financial Performance
Every member of your organization should carry some responsibility for the financial performance of your business. Further, their compensation should reflect this responsibility.
Managers who get their organization to do their work more efficiently and effectively move from supervisors to leaders.
Great leaders don’t need to be the smartest in the room and financial incentives encourage your employees to be strategic in their daily tasks.
This strategy requires accurate trending and precise reporting because you need to know the direct financial impact each task can have.
But if you know the ROI for receivables you can incentivize your accounting employees with some percentage of this positive cash. The same is true for every aspect of service from:
- Client satisfaction
- Order fulfillment
- Customer support
- Client retention, and
- Business development
Every task in your company can positively affect cash flow. Reward your employees accordingly and they will come up with innovative solutions to grow your revenues and margins.
#7) Don’t Micromanage
Have you ever met the executive who was concerned with the telephone plan one of his employees chooses? They are responsible for the profit and loss of a multi-million dollar portfolio and are caught in the minutiae of operations.
Don’t make this mistake. Each level in your organization has its discreet level of financial responsibility.
Accurate reporting, reducing costs and incentivizing employees relieves this burden. Allow your employees to shine and they will.
If they don’t, you may need better employees.
#8) Remain Strategic
Controlling the finances of a large company is an evolving process that needs to remain strategic. Just as there are advances in each industry that chance the delivery of goods and services, the same is true with financial management.
Using the basics of cost control and a focus on cash flow will allow you to make larger acquisitions, major investments, and sound decisions involving the longevity of your business.
Without the support of a sound financial strategy, your business will be forced into agreements and decisions out of desperation.
Take care of your cash and your cash will take care of your business.