How To Use Bookkeeping To Improve A Company's Cash FlowShare
Bookkeeping is about more than tracking information about your business activities. Properly utilized, bookkeeping is a tool that will help you to improve your company's cash flow. How can you use bookkeeping services to get cash flowing faster to your company?
Many businesses struggle to collect on money owed. This can cripple a company because it limits the ability to pay down debts and make new investments. Ultimately, this creates a sluggishness throughout the operation.
However, you need to know who owes you money. Likewise, you need to know what they owe. That better include interest, too. Have a professional go through your books to identify who still needs to pay up.
Writing Down and Carrying Losses
Not everybody is likely to pay in full. That's fine because you can usually realize the loss once you've made a good-faith collection effort. It's not as good as getting payment, but you'll at least be able to write part of it off to reduce your tax bills.
Note that you should also carry losses forward whenever possible. For example, you might have startup up debts during a period when you can't maximize your write-downs. The good news is most businesses can carry those losses forward, realizing them in later and more profitable years.
Maintaining Accounts to Cover Liabilities
It turns out you're probably going to owe some folks, too. Many small businesses keep funds for covering liabilities in checking accounts with no interest. This is a terrible idea because it doesn't produce a return while the money sits. It's best to set up an account that offers at least a barebone interest rate so you can get a return on unmobilized cash.
If you're not sure if you're maximizing your returns, ask a bookkeeping pro to check your numbers. They can compare your current returns to what's on the market. If you're not getting the best return, they can flag the problem and point you in the right direction.
Segregation of Funds
Especially in early-stage businesses, it's common to mix personal and business funds. This is legal for most types of sole properties, but it can become problematic once you incorporate. Also, pulling money from the business creates bookkeeping problems, particularly if you're not making detailed notes about it. If you have no intention of putting the money back, you may also need to report the difference as personal income.
One way to avoid this issue is to segregate business funds. Keep accounts purely for the business, and don't mix them with personal expenditures.
Contact a local bookkeeping service to get more tips.