Tax Strategies & Preparation Articles

They say cash is a company’s lifeblood. A heart can’t function if there’s no blood running through the veins, just like a business can’t function without cash flow. The truth is, regardless of all the money you may have coming in from your clients, it doesn’t mean much until it’s in your hands.

In an article written by Jenny McCune, she quotes Gene Fairbrother, president of MBA Consulting Inc., as saying, “Not managing cash flow is the No. 1 reason that small businesses fail.” As a tax preparer, this is probably a fact of which you are already acutely aware. But are you ensuring a healthy cash flow within your own business? Financial analysis is something you’re already familiar with. So if you haven’t yet, it’s time that you apply that expertise to your own tax practice. Here are 10 things to remember when minding your cash flow:

1. Manage your spending.
Keep a handle on your spending. Don’t justify extravagant purchases simply because they’re tax deductible or you consider them necessary for your business. Reckless spending now can cripple your business later.

2. Monitor your finances.
This doesn’t just require you to have a budget. You must regularly monitor your business accounts so you know how much cash you have access to.

3. Collect payments quickly.
Develop a fairly aggressive method for collecting on delinquent accounts. Also, clarify your payment policy with all clients so they will be prepared to submit payments in a timely manner.

4. Disburse money slowly.
On the other hand, you should hold onto your money as long as possible, making payments no sooner than necessary (unless you get a discount for early payment).

5. Considering leasing, rather than buying, office property.
If you’ve thought about purchasing property for your office, think again. While leasing costs may be more in the long run, initially you’ll pay less which can offset unpredictable cash flow.

6. Forecast sales and expenses.
It’s important that you try to forecast future sales and expenses. While your estimations won’t be perfect, they will help you plan.

7. Have a cash reserve.
Regardless of your vigilant efforts to forecast your fiscal health, sometimes you will fall short. In such cases it’s good to have a cash reserve to fall back on.

8. Establish a backup system.
Again, you may find yourself in a pinch at some point and will need to rely on credit or alternative methods of financing. Have those in place before you encounter a cash flow emergency.

9. Determine cause of shortfalls
Once you encounter shortfalls, determine their cause so you can avoid them in the future.

10. Coordinate your strategy with financial analysis
As you analyze your financial status you’ll need to re-evaluate your business strategy and, when necessary, make adjustments.

Maintaining a healthy cash flow should be one of your top priorities. Without it your business could fail. The good news is, with your expertise it should be a piece of cake, enabling you to share similar tips with your clients who just might need this information more than you do.

References
McCune, Jenny. “10 Tricks to Keeping Your Cash Flow Healthy.” 10 March 2000. BankRate.com