Written in conjunction with our partners at CFO Selections

​A cash flow shortage is the number one reason why small businesses fail, but even mid-sized and large companies need smart cash flow management to survive and thrive.
Insufficient cash forces companies to make difficult decisions about who is going to get paid and when. Unfortunately, this can lead to vendors and suppliers being paid late, being overdue on rent, even employees waiting on paychecks.

It is not an exaggeration to say that cash is the lifeblood of any business. Not having enough money to pay for expenses can erode business credibility, which leads to:

• Suppliers refusing to do business
• Credit card companies increasing interest rates
• Vendors tightening payment terms
• Landlords evicting tenants
• Employees leaving

Ultimately, a company’s potential will be stifled if there is not enough capital to invest in the assets that facilitate growth, and its very existence can be threatened as well.
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So, are you ready to manage cash flow for the coming year? 

As an accounting recruiting firm and financial services provider, we work with businesses everyday who ask, “Should we hire or outsource our accounting needs?”

This question is especially important for companies in the startup phase because they likely have significant cash flow concerns to consider. However, startups may also have other unique characteristics that make this question more challenging to answer, such as:

• Interest from outside investors
• Financing considerations
• New market development
• High growth market demands
• Scalability challenges
• Patenting needs
• Family ownership

​While every business will have their own unique needs and challenges, it is generally best for a startup to outsource their accounting activities initially and then hire internally as their needs change. Where does that shift happen? 

A guest post from our partners at CFO Selections.

With an increased focus on financial planning and analysis (FP&A) in recent years, many companies have begun asking, “Do accountants do financial planning?”

For cash-strapped startups and small businesses the temptation to simply add to their accountant’s workload is strong. However, this is not a wise decision. While overloading any one role presents problems on its own, entrusting accountants with FP&A poses its own unique risks.

The differences between accounting and FP&A necessitate that it be handled by separate personnel with unique skillsets and performance objectives. Understanding what FP&A entails and what is at stake can help organizations make smart decisions about who should handle this critical responsibility.

Is your cash-strapped business looking for ways to improve cash flow without needing to find additional financing?

Improving your Cash Conversion Cycle (CCC) is a key method for improving your cash flow without having to look externally for assistance, strengthening the business from within. CCC is the measure of how long it takes a company to convert inventory, investments, and resources into cash. Savvy companies will analyze this metric to understand how long money put into the business is tied up before it is converted into sales and cash is received.

Accelerating cash inflows allows businesses to cover payroll and pay operating expenses on time. So, how can you strategically increase your cash position?

Small businesses with less than $25M in annual revenue can choose whether they prefer to use cash or accrual accounting. However, you must declare which you are using when filing business tax documents during formation and plan to stick with your choice for the foreseeable future. New businesses are often tripped up by which they should use because they do not truly understand the implications of each type of accounting.

They ask:
What are the differences?
Are there advantages to using one over the other?
Do bookkeepers and accountants work with both?

The decision about which type of accounting system to use depends on size, payment terms, business goals, available resources, and third-party financial requirements. Management should consider all these factors before deciding and consult with a professional accountant as needed during the process.

Both cash and accrual accounting methods result in the same bottom line when all your accounts receivables are collected. The differences are when that revenue is recognized and what kind of tax obligation is incurred as a result.

During a recession, too many organizations try to cut costs indiscriminately. The savviest organizations, however, lean on the data to determine when to trim and when to ramp up spending to capitalize on new opportunities. A Harvard Business Review study from the 2009 recession showed that companies that strategically increased spending sooner actually weathered the downturn better. Shrewd business owners who knew when to cut and when to spend recovered lost revenue more quickly and positioned their businesses better for long-term success.

Companies that do not currently employ an accountant may be hesitant to hire one during this downturn due to the expense associated with doing so. However, some circumstances call for an experienced accountant, and a recession is one of them.