When it comes to running a small business, cash is king – well, cash flow at least. From paying vendors, suppliers, partners, and employees, to investing in growth opportunities, cash flow is vital to any business’s success. Effective cash flow management isn’t just important for day-to-day business operations, but long-term planning as well. Small businesses are significantly better placed to thrive when they have full visibility and control over their cash flow.
Despite this fact, a recent poll of small business owners from American Express Canada found that 63% of small businesses were experiencing challenges due to cash flow issues. More than half of respondents said that cash flow issues were specifically impeding their growth, with 38% saying that they had to turn down a growth opportunity in the past year because of constraints on working capital.
So, what’s the solution? Improving cash flow management comes down to two main factors: how much control you have over when payments are coming in and going out of your accounts, and how effective you are at analyzing your cash flow to glean insights and find opportunities for improvement.
Accounts payable and receivable automation tools are a powerful way for small businesses to bring new layers of efficiency into their day-to-day financial operations and to take control of their cash flow management.
First, integrating AR/AP automation technology with your accounting software lets you streamline the entire payments process, from generating payments from your invoices to tracking them in real time. This means that your business can shorten the time between creating an invoice and receiving payment, while also auto-reconciling sent and received payments with your bookkeeping software.
At the same time, automating your AP/AR activities can help provide a real-time snapshot of your business’ financial health by enabling a complete, timely view of your finances. By automating these processes, businesses can track payments and billing cycles more accurately.
What does that mean for your business? Well, for starters, it gives you much more visibility into where your money is at any given point in time. This, in turn, enables you to control your cash flow by scheduling payments and choosing payment methods that put your cash where you need it, when you want it.
Small businesses need to have visibility and clarity on their cash flow to know if they have the resources to expand operations, or capture opportunities that are presented to them. In this way, the real power for small businesses lies in their ability to plan for the future.
Improving cash flow management with automated AR/AP makes financial forecasting more precise. Businesses can identify trends in payment cycles, anticipate regular expenses, and foresee potential cash flow gaps with much more certainty. This in turn means that they can make data-driven decisions about investments and resourcing in the short and long term.
The opposite is also true: without a clear picture of your company’s finances, and a sound cash flow management strategy rooted in up-to-date data, businesses expose themselves to significant risks. If you aren’t working from accurate information, that means any forward planning you do is liable to break down, or worse, lead to a misallocation of resources that could put your business in serious financial trouble.
The real difference between a small business that is merely surviving, and a business that’s thriving is whether they are working proactively, or reactively to their financial situation. The insights and real-time data that automated payments technology can bring to your business are one of the most powerful tools to ensure your company is positioned for success.
Predictable cash flow isn't just a tool for avoiding financial pitfalls; it's also a springboard for growth. When you understand your cash flow dynamics, you can strategically plan investments into new projects, resources, and even markets.
For example, your cash flow analysis may uncover some extra wiggle room in your budget you weren’t aware of before – maybe you can afford to bring on a new sales person to help you reach new customers, or perhaps that’s some extra cash you can divert to a marketing or advertising push ahead of a key season for your business. Knowing what you have coming makes planning for these things much easier.
While proactive planning is foundational to the long-term success of any business, the ability to “strike while the iron is hot” and quickly make decisions is crucial for enabling growth in the near-term.
Clear visibility into your cash flow also means that you can quickly assess whether you can afford to invest in a growth opportunity that presents itself to you. With access to accurate cash flow data, you have the intelligence needed to determine if you have the resources to take advantage of it.
For small businesses looking to accelerate growth, automating key operational functions like AP/AR is a way to boost efficiency, and improve the overall decision-making machine that drives your business forward. Automation can help your business gain increased visibility over your day-to-day finances, which will in turn enable you to act on growth opportunities with confidence.