by Mark Foxley-Conolly, Director
While business owners know that managing cash flow is integral to running a successful business, many struggle to do so effectively. This may explain why the biggest cause of business failure is inadequate cash flow or high cash use.1
Cash flow issues can also be symptomatic of other problems within your business that need to be addressed.
Five tips for improving cash flow
Positive cash flow is paramount; without it, you may not be able to meet your financial obligations or grow.
#1 Invoicing
Too many small business owners have disorganised books or outdated systems which make invoicing and reconciling payments difficult. This can lead to missed invoicing or being unaware that payments have not been received.
It may be time to consider using the cloud. Many cloud-based invoicing systems feature automated processes for debt collection, reminder statements and payment scheduling, all of which can help you better manage your cash flow and improve your current financial position.
Always invoice immediately and consider offering discounts to your clients for early payments.
#2 Forecasting
Seasonal customer demands or ‘lumpy’ expenses can have a huge impact on cash flow for a small business. If your business faces seasonal fluctuations or months where you expect increased cash flow, it’s important to plan so that you can manage your cash flow in the leaner months. Forecasting is an effective business practice and can help you understand the seasonal impacts or peak expenditure times so you can plan accordingly. Forecasting may also help you with improved stock/inventory management, which can also help with cash flow.
#3 Payments
It’s important to set up the payment terms with your customers to align with credit terms outlined by your suppliers. If your payment terms are out of sync with suppliers’ credit terms, you can quickly get into a cycle of negative cash flow.
Other strategies to improve cash flow include maximising your payment times and establishing good relationships with your vendors in case you need to renegotiate payment terms.
It may also pay to check the credit rating of customers for large orders, or build in deposits and payment schedules for larger orders or projects to help maintain a positive cash flow position for your business.
#4 Managing growth
While growing your business sounds like the ultimate goal, without the proper steps in place, it’s easy to struggle with cash flow. Employing new staff and purchasing new equipment to meet growing customer demands can place a strain on your cash flow. Strategies such as accessing a line of credit may be required to keep your cash flow under control so you can manage growth or take on large projects.
#5 Seeking professional help
Never underestimate the value of seeking professional advice. Your accountant can provide true insight into your business and prepare accurate financial information to help you understand what is happening in your business which may be causing cash flow issues, and ultimately help you make better business decisions. A professional is also well-placed to advise on appropriate systems and other financial strategies to help improve your overall business management and minimise your tax.
Cash flow issues can also be symptomatic of other problems and seeking professional advice could make the difference between life and death for your business.
To find out more about how to improve your cash flow or any other aspect of your business performance, please call 07 5479 5499 or email info@vbatax.com
1 http://asic.gov.au/about-asic/media-centre/find-a-media-release/2015-releases/15-337mr-asic-reports-on-corporate-insolvencies-2014-15/#table-2
At VBA we specialise in strategic tax advice, offering tax and financial reporting for individual income earners, family businesses, tradies and construction companies.
General Advice Warning: This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.
