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Every business firm must have adequate cash flow balance in their account. You never know when a need can arise wherein you require immediate cash. If you don’t have sufficient cash in hand, then it can damage your reputation or cost you some money (if you take money from financial institutions, interest rates must be paid).
Here are some accounting tips to avoid cash flow mistakes.
1. Improper Records
One of the common bookkeeping mistakes made by small businesses is not to record the transactions. It’s impossible to expect you to remember each and every transaction. At times, some businesses do not know how to maintain records. They may add revenues in books of account even before the payment is received, just because the goods are supplied. The revenue entry should be made only after you’ve received the payment.
2. Long Credit Period
If you give a long credit period to your debtors, then there is a possibility of a low cash balance. The credit period you receive from your creditors should be lesser than what you give to your debtors. Giving credit to unworthy debtors is not recommended. Also, allowing credit on smaller amounts should be avoided. The cash conversion period should be reduced.
3. Paying Too Early
Making early payments to your creditors before the due date is not necessary. If you have a good rapport with your creditors, you can ask them to extend the credit period. You can also ask for a longer credit period if there is a big payment to be made.
4. Calculating Errors
Errors in calculations are one of the many bookkeeping mistakes. This happens if you do not have a well maintained accounting system.
5. Error in Forecasting
Sometimes, errors in sales forecasting can lead to inadequate cash flow. If you overestimate future sales, then you would liquidate the present cash to increase your sales. However, if the sale does not increase, then your money gets blocked in the excess stock available with you. Therefore, it is important to take into consideration past data as well as the current economic condition for forecasting. This will minimize the errors in forecasting.
The above mentioned accounting tips should help you to avoid bookkeeping mistakes when it comes to cash flows. Bookkeeping mistakes can be avoided with the use of better software available for accounting and taking professional help. If you face cash flows problems often then it is better to consult an expert accounting firm for assistance.