Cash is king for small businesses. According to a US Bank study, 82% of business owners said the inability to sustain cash flow at least contributed to their collapse.
But that's no surprise to you!
As an accountant, you play a valuable role in helping business owners manage their cash flow. So, let's explore some practical strategies you can do to help your clients with cash flow challenges.
Before Anything, Take Time to Understand Your Client’s Business
Every business is different. If your client senses you don't understand what they're up against, you'll end up talking at them. They don't listen because they know their business better.
Make sure you understand the environment in which their business operates. The ideal cash flow for a car repair shop will not be the same for a restaurant.
Learn their industry, business operations, and goals.
Run a thorough analysis of the client's finances to pinpoint industry-specific cash flow patterns and challenges:
- Seasonal trends
- Raw material price changes
- Employee retention
- Accounts receivable headaches
The more you know about them, the better you’ll be able to help.
Strategies for Helping Clients with Cash Flow
Lay a Strong Foundation with Budgeting and Forecasting
Create detailed cash flow budgets and financial projections. Regularly review and adjust budgets based on actual performance and generate forecasts.
Utilize budgeting software and tools for accuracy. But what's more, that software should allow you to create and automate custom reports for the client that are easy to understand.
Beyond the need for accuracy, leveraging the right software can enhance transparency and build trust. These are essential for creating a win-win for you and your client.
Use Processes and Tools to Streamline Accounts Receivable
Accounts receivable problems plague many companies. In a lot of cases, the customer will pay—eventually. But your client just can't seem to collect timely and efficiently. They may blame their customers rather than take responsibility for fixing the problems.
Efficient invoicing and billing processes shorten the time to collection. It takes the pressure off your clients and can enhance their customer relationships.
You're going to implement strategies to reduce accounts receivable aging. So, what does an efficient process look like?
- Set clear goals, such as 85% of first notices going out in 7 days or 80% collected within 30 days. Track performance and adapt.
- Customers will forget they owe money and they need reminders. Automate these payment reminders across mediums, including text, email, and snail mail. No robocalls, please, unless that's their customer's preference.
- Streamline the customer's payment process with autopayments, payment portals, etc. And don't forget to get the most out of invoices by identifying opportunities to "secretly" market and upsell through their invoicing procedures.
- Suggest your clients offer incentives for early payments and penalties for late payments. Then, run the data to show them how this works in their favor.
Keep a Close Watch on Accounts Payable
Help your clients negotiate favorable terms with vendors and suppliers. As their accountant, you have more "authority" in the negotiations than your client would alone. You can clearly communicate how paying too much will jeopardize your client's ability to continue that vendor relationship.
- Leverage technology for automated accounts payable processes to keep the vendors happy and enhance negotiation power.
- Prioritize and time bill payments to optimize cash flow and don't pay bills before they're due unless your client has a clear strategic advantage.
Manage Debts and Financing
Evaluate existing debt and explore refinancing options. In addition to increasing cash flow, this can take a weight off your client's shoulders, allowing them to engage more effectively with (and apply) your solutions.
Advise on the use of credit lines or loans when necessary and assess the impact of financing decisions on cash flow.
Stress the Importance of Proper Inventory Management
Excess inventory is like a cement boot holding your client back at the starting line. Excess inventory:
- Ties up cash
- Incurs storage costs
- Increases casualty risk and must be insured
- Faces expiration/obsoletes
- Gives clients a false sense of security
All enemies of cash flow.
Evaluate inventory turnover rates and identify excess inventory. Implement an inventory management strategy based on the industry.
Leverage Cash Flow Forecasting Tools
Let your client see where they're headed if they stay on their current course. Then, alternate forecasts based on recommendations.
Make it real for your clients so they can make more data-informed decisions. The visuals your forecasting tools produce help you communicate more effectively with your client.
Helping Clients with Cash Flow Should be a Top Priority
Cash flow is king in any business. As an accountant, you can set your clients up for success by reviewing and streamlining their accounts and financial processes. Thryv provides tools that help small businesses increase cash flow with tools like automated estimates and invoicing and a centralized customer communication center.
Remember, your clients are coming to you for cash flow support. Make sure you are providing the tools they are searching for.