The internet is full of advice for small business owners on what to do when facing a cash shortage. But there’s very little content on how to manage a cash surplus.
So as an accountant and advisor, how can you help your clients that don’t make the most of the cash available to them?
What a cash surplus can do for a business
For some small businesses, having surplus cash can feel like a miracle.
But surplus cash can be a goldmine for reinvestment, the repayment of loans, or the refinancing of business debt. A surplus that’s left untouched means that opportunities are left untapped. So what are some of the ways to use that extra cash?
Investment means a decision to grow a business. Regardless of whether it’s in new staff, training, new premises, equipment, or market research, investment can lead to the expansion of the business and, hopefully, it will produce good ROI over time.
As an accountant, you have the knowledge necessary to make sure your clients make sound and timely investments for their business.
Pay off debts
By paying off debts and loans, business owners can secure a future with fewer financial obligations and more sustainable cash flow.
Advising your clients on how to best decrease or refinance debt can help them to make the right choice for now, and for the future of their business.
Take on more work
Using the extra money to take on additional projects enables clients to reinvest directly into the daily operations of the business. It can mean that they are able to get more work done, increase the cash flowing into the business, and keep up the cycle of increasing profit.
Additionally, during times of a cash surplus, it makes sense for your clients to begin upselling to their current customers. Encouraging additional revenue from trusted and reliable customers can ensure that cash flow remains positive for longer.
For those business owners that have only just broken even, or suddenly (and unexpectedly) find themselves with a cash surplus, it may seem alien to them when you suggest paying dividends. However, dividends can go a long way towards improving relationships with investors, or board members.
Of course, not every small business has investors, and quite a few are bootstrapped. But knowing when and where business owners can pay dividends, or increase the wages of their staff, can go a long way towards boosting morale.
Make sure your clients know the difference between profit and cash
Most business owners assume that being “profitable” means that they will have excess cash available to them. However, this is not always the case. It’s vitally important that clients understand the difference between profit and cash in the bank.
Without the ability to make this distinction, business owners will often make misguided financial decisions. Helping your clients to understand these two distinct financial metrics improves their understanding of the financial health of their company.
With your experience as an advisor to small businesses, you’re in the perfect position to advise on both cash shortages and surpluses. As more and more accountants offer advisory services, business owners are seeing their accountants and bookkeepers as an intrinsic part of their financial management team.
Part of this new role of the trusted advisor means not only saving businesses from insolvency but pushing them towards growth opportunities to further their business plans.
How Float can help
Float is a visual cash flow forecasting tool that pulls in every invoice, bill, and actual transaction from your clients’ accounting software, providing granular insight into the flow of cash into and out of a business. Float’s scenario planning feature can provide even further insight into the cash impact of your clients’ reinvestment plans.
Understanding where and when a cash surplus may occur is vital to keeping inertia at bay. With increased insight into the cash flow of your client’s business, and your position as a financial advisor, you can help to encourage growth and confidence in their future plans.
Why not see for yourself how Float can help to alert your clients to a cash surplus? Sign up for a free licence for your firm here!
7 Advantages of a Cash Flow Forecast
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