IFC recently reported that there are 37 million SMEs in Nigeria, all of which can benefit from money management. SME finance tips can work wonders, whether a business is micro, small, or medium-sized, so discovering a few trusted cash management tips may be the key to staying in business and growing a company.
Generally, cash management refers to a process that involves handling businesses’ cash inflows and outflows that come from the operations, investments, and financial activities of the organization. Since it involves money, it plays a crucial role in the financial success of a business.
That said, proper implementation of cash management strategies is necessary to achieve financial stability for businesses. Hence, when entrepreneurs try the four cash management tips below, including careful preparation of bank reconciliations, negotiations with suppliers, and strategic bill payments, they may find that they avoid business problems and become more profitable.
Careful Bank Reconciliations Can Prevent Tax Issues
Nigerian small business owners should know that bank reconciliations are important, and Nigerian small business owners should take care to ensure that they perform them diligently. A bank reconciliation is a process of reconciling your business’ financial records. If this isn’t done properly, you may find that you encounter tax problems that end up costing you money. 80 % of businesses in Nigeria are small, according to the IFC, and these have enough challenges without extra tax bills. To begin, you should access detailed transaction records from your financial institution. Then, gather your business records, such as your ledger that shows incoming and outgoing expenditures. Next, determine your starting point. which is the last time your business book balances matched your bank account balance. Begin the reconciliation from that point. Next, go through your bank withdrawals, check expenses in your ledger, and then determine the end balance, which should match the business account totals. If any issues with the bank arise due to your financial details, you can file a complaint.
Another important cash flow management tip to keep in mind is the calculation of depreciation. As defined, depreciation refers to an accounting concept that involves the decrease of an asset’s value over a certain period of time. It’s also considered an essential accounting practice that involves the process of allocating cost to a physical asset over its economic usefulness to the organization.
Generally, calculating depreciation is important because it can have an indirect impact on cash flow. Since depreciation is considered tax-deductible, it’ll lower the cash outflows associated with income taxes. When the organization prepares and files its income tax return, the depreciation will be treated as a non-cash expense when computing the taxable income. In that case, it can minimize the amount of tax liability that is demandable from the company. Consequently, calculating depreciation can be an excellent way of managing cash flow as it lowers the amount of cash your company has to pay in taxes, thereby making it more financially stable.
On the other hand, when it comes to computing depreciation, there are many accounting methods to use to get the job done right. But you can also make the calculation much easier and faster with the help of reliable accounting software. So, choose the right software from a reliable provider and you’ll be able to properly compute depreciation for cash flow and tax purposes.
Negotiate Payments With Suppliers
Part of proper cash management is trimming the cost of monthly business expenses. One of the most effective ways to do so is to negotiate (or renegotiate) your payments with suppliers. If you’re looking for vendors, vet them carefully to make sure they’re renowned for providing quality goods and services. Then, begin to fight for the best possible deal, which allows you to maximize business profits by reducing costs. If you already have existing contracts with suppliers, ask to renegotiate. A lot of suppliers will be willing to offer better terms because they don’t want to lose clients’ business when contracts finally run out.
Pay Your Bills Strategically
When you spread payments out by extending your payables for as long as you can, you’ll have more cash flow that you can use from day to day while running your business. To pay your bills in a strategic manner, gather all of the bills and look at the due dates. Start deciding what your payment priorities are. The major bills of highest importance are generally payroll and rent, and these should probably be paid first. The other bill payments can be staggered based on their due dates, but they shouldn’t be paid late.
Now that you know three smart ways to enhance cash management at your business, isn’t it time to put them into action? When you do, you’ll boost the odds of avoiding tax problems, create more financially beneficial relationships with suppliers, and pay your bills strategically to keep cash flow levels optimal.