Make Your Job Easier- Hire An AccountantMake Your Job Easier- Hire An Accountant

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Make Your Job Easier- Hire An Accountant

Have you ever thought about how many different hats you wear during the day as a small business owner? One minute you might be talking on the phone with potential customers, and the next you might find yourself meeting with an investing team. Although you might have a large, highly diverse set of skills, chances are that there are a few jobs you should leave to the professionals. Taking care of your books can be challenging, and a few simple mistakes could cost you thousands of dollars. On my website, I have included useful information about how an accountant can make your job a lot easier.

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5 Keys To Know How Much Cash Your Company Needs

Your business needs to hold a certain amount of cash. If it has too little, it may not be able to weather slowdowns or unexpected expenses. But if it carries too much cash, the company may miss out on opportunities to make better use of it.

So, how can you determine how much cash to keep on hand? Here are five questions to answer.

1. What Are Your Expenses?

The amount of cash needed within a period of time depends on how a business goes through its cash. You can use past periods to determine this 'burn rate'. Analyze accounting records from the recent months, quarters, and years to find average expense rates. Weed out one-time-only expenses for things like asset purchases, lawsuits, or penalties so you can come up with a running average. The result will tell you how much of a financial buffer your business has.  

2. What Other Sources Do You Have? 

If your business had an emergency, where could they draw cash from? The answer should be a mix of savings accounts, investments, lines of credit, and loans. When assessing each of these options, focus on how much you could get and how quickly you could get access to it. If you can draw immediately on an already-existing line of credit, for example, you probably don't need to keep as much on hand.

3. How Quickly Can You Adjust?

The other way to boost cash flow quickly is to adjust company operations to reduce expenses significantly. How much could your business adjust at a moment's notice? If you must purchase a lot of inventory or raw materials in advance, you likely can't get that money back quickly. However, if you practice 'just in time' inventory, you may be able to ramp up or tone down purchases very quickly.

4. What Is the Business Cycle?

Where is your company in the standard cycle of business life? A startup business generally needs a lot of cash to get started, whereas an older business that has already streamlined and established its routine often needs less. If your work is cyclical, you may have fewer accounts receivable at the beginning of the season than at the end. These cycles give you an idea of what your cash strengths and weaknesses are.

5. What Does the Future Look Like?

Finally, assess your upcoming plans to determine how to adjust your past spending habits to better relate to the future. Do you plan to start a new product line, buy large assets, or make large operations changes? Is your customer pool growing, stable, or cooling? Are key assets aging or in need of replacement? Any of these elements could indicate that you need to increase cash on hand or that you can be less conservative.

If you analyze your company's past and future as well as learn where you can come up with a boost in cash, you can use your existing cash accounts in the wisest and most profitable manner.

Not sure where to start? For more information, contact a business accounting company.