Financial management tips & tricks for IT companies

We know, being an entrepreneur is not that easy and wearing the hat of a financial analyst for your business adds even more pressure on top.

We want to help you to be more confident about taking important business decisions and gain more trust in the future of your company. If you need more control over your money, but don’t know how to start, in this article you’ll find some tips and tricks for a more efficient cash management.

Where to begin?

Try to understand the structure of your monthly payments. Set up categories for each transaction in your bank account. The precision level is established by you: choose either more general categories such as Salaries or more in depth subcategories such as the salary for each employee or the costs for each supplier.

The advantage of a more specific category structure is that you can monitor carefully all the separated outflows for each month. This means more control and details about your main costs. You can discover, for example, that your internet provider has become way too expensive lately or that you need some new, more advantageous subscriptions for your mobile phones.

If you need a clearer situation of your inflows and outflows for each client or project in order to determine the level of monthly profitability, then you have to organize everything accordingly. Create separate categories for each client in both sections (in and out) or use ThinkOut to help you label and filter out separate cash flows more easily.

Keep an eye on cash collection frequency and period. Organise your clients/projects separately, check the payment terms and verify if they really transferred the money as agreed in the contract. Calculate the average payment delay and try to reduce it as much as possible in order to assure the necessary cash on hand. Some tips on how to do this are to send the invoices on time, followed by reminders, use discounts for advance payments and multiple payment methods (e.g. bank transfer, card payment).

Check the contracts for each client and calculate the total amount of money already collected. Add the difference as an inflow prediction on an estimated date in the future – use the client history to better approximate it. By following these steps you take care of the future of your business and understand what decisions should be taken in order to avoid cash flow gaps.

Pay attention to exchange rates differences. If you use multiple currencies for your business, be careful with the costs implied by exchanging your money. Also, if you need a consolidated overview of your financials, no matter the amount of banks, accounts or currencies, consider using ThinkOut.

Check if your cash fluctuations are influenced by seasonality in any way. For this you’ll need data for at least 1-2 years in the past. Verify your cash flow and try to identify your best months and the rainy periods. Maybe your business is struggling during summer or on the contrary, it’s the perfect time to thrive.

The information gained about seasonality is a good starting point for your cash flow forecasts. You noticed that starting from December until spring you sell less than usual? Then autumn is the time to put some money aside. The beginning of the year is very productive for your company? Then plan major investments for summer.

Forecast your next money movements and take care of the future of your business. Even though there are unforeseen situations that may impact your company, an estimated future overview based on real data will give you more confidence in taking important business decisions. Also, a prognosis of your cash flow will help you to better understand what investments are needed for your company’s growth and more importantly, when you should make them.

How to start? You already have a carefully categorised payment history so this should be your starting point. Use your fixed recurring payments (e.g. rent, utilities) to build the structure of your forecasting plan. When you make sure that everything is added, continue with the variable costs, such as advertising, hosting, servers.

Go on and start adding inflow forecasts based on promises such as an issued invoice or a signed contract. What is your expected profit? What if you lose a client or someone refuses to pay? Check your estimated future perspective and look for any potential cash flow problems (periods where inflows are lower than the outflows). 

If you want your business to grow, see what are the costs incurred by expanding your team. Take into account the recruiting agency, the new laptop, desk, consumables. Calculate the amount required by each new employee and multiply by the number of people needed. Take into consideration that, for example, a junior developer means lower costs compared to a senior, but the mentoring period is longer and more expensive. Consolidate all these particular pieces of information and take informed decisions.

For more confidence, consider using business scenarios. Start with the primary 2, the optimistic one (where you reach all your targets and everyone is happy) and the rainy scenario (where you lose an important client or taxes are higher). Take a moment to observe what impact can each scenario have on your business and make sure that you are ready for both situations. As for the forecasted time frame, pick a period that you are comfortable with, be it 3 months, 6 or 1 year.

You can read more about financial planning in our article about how to build financial forecasts for your business.

Once you finish setting up your cash flow, make sure you come back and update the data with actual transactions. The more you refresh and adjust your forecasts, the easier it will be to keep track of daily fluctuations and maintain a real-time data support for the most important decisions. This habit will keep your business healthy and will help you to sleep better at night. 

Managing your business finances shouldn’t be a headache. Get rid of Excel and complicated spreadsheets and start using ThinkOut, the cash flow management and forecasting software for entrepreneurs.

• Connect your bank accounts and save precious time by automatically importing daily transactions. 

• Create the category structure based on your particular business needs and take advantage of the automated transaction categorisation.

• Use labels for all inflows and outflows associated with a specific client or project and check their profitability each month.

• Monitor your consolidated financial situation no matter the number of banks, accounts or currencies used.

• Build budgets and forecasts and ThinkOut will help you to keep track your estimated vs. realised amounts.

Try ThinkOut for a 30 day free trial and see how easy it can be to stay on top of your business cash flow.

Need more information prior to creating a free account? Then continue to read on how to use ThinkOut for cash flow management.

If you have questions about ThinkOut or want to schedule a free demo, drop us a line at support@thinkout.io.