As a business owner, having a smooth cash flow is critical to your growth and success. With an efficient cash flow, you can plan your business operations more accurately. Conversely, inefficient cash flow management can erode your business profitability and diminish its prospects. This would have long term implications for you as you aspire to seek more customers or investors or even hope to sell your business.
A seemingly thriving firm might fail due to insufficient financial flow. Even if your company's cash flow isn't jeopardized, it may limit its ability to grow. For instance, you might run a small construction company. Let’s say you secured projects and foresee generating a lot of revenue. However, your clients may not pay you until three months after you have completed and delivered the projects.
You may need to purchase raw material, pay your staff salaries, and bear transport and logistics costs, etc. The project completion may take 30 days or longer. It would have been a fantastic way to generate revenue while working on the project but we all know that that’s not the case.
In order to sell their products, businesses first need to make them. A restaurant first needs to make their dishes in order to sell them. An oil & gas company sells their services but needs to first acquire equipment and services from other vendors. A construction company may build a house but need to first purchase services and raw materials.
The activity of purchasing raw materials and services is considered corporate expenditure. It is crucial for businesses to understand what they are spending their money on. Once they have visibility on their cash flow, they can better manage their business finances.
Key Components of expense management
Before you can begin any sort of planning, you need to have visibility. You have to know who has spent what amount of money and on which activity. Was the expense a one-time or recurring payment? When was the transaction made? The ideal way to get a bird’s eye view of your expenses is to do so using a single platform that you can access anytime and anywhere.
Budgeting is a multi-disciplinary activity. You need to know what service or product, or a combination thereof, you have to procure that will comprise your final offering. You will also require the purchase price of the raw material or service to be purchased as a percentage of the final product.
You also need to know details of what your team is spending the company money on, what they are buying, how much, from where, and how much they are paying. You also need to be able to set spend limits for all of them to ensure that there are no spillages.
You need to have visibility on your corporate spend, but you also need to understand the granular details to be better informed. This can enhance your communication with your team, and save time collecting scattered information relating to company expenditure.
The significance of poor expense management
The companies who lack any of these crucial components experience poor cash flow management. And, as such, they are unable to budget or forecast their financials. This can also have long-term implications for them in terms of product costing and knowing how various purchases relate to one another.
The solution for startups and SMEs
The best solution is for you to have access to a platform and app that will give you the transparency to manage your corporate spend. This platform should be your indispensable resource to provide you an overall picture of your company expenses. Anytime you assign a team member with a procurement task, they can use their physical or virtual VISA business card and the details will show up in the portal.
The best part is that it should not cost you anything if you sign up for a digital business account.
INFT is Asia’s first community-driven digital business account for startups and SMEs. It is a truly user-friendly suite of exceptional business experiences comprising finance and much more. At INFT, we enable digital entrepreneurship.