Cash flow is the movement of money in and out of your business. We all want more money coming in than we have going out, but as simple as that sounds, making it happen takes some serious planning and insight.
According to Xero’s monthly Small Business Insights, 53.3% of Australian small businesses were cash flow positive in August 2019, which means that there’s still a large percentage that are struggling in the area of cash flow management.
The Australian Securities and Investment Commission (ASIC) publishes an annual overview of corporate insolvencies based on statutory reports lodged by external administrators. For the 2017/2018 financial year, inadequate cash flow was 1 of the top 3 nominated causes of business failure.
The December and January holiday season can be a very quiet period for many businesses, which has a significant impact on cash flow. It may well be a good opportunity to look into strategies for improving your cash flow in 2020, while it’s a bit quieter in your business.
Managing your cash flow efficiently involves both numbers and timing – knowing how much is coming in and going out, as well as when.
Here are 4 tips for managing your cash flow:
- Save wherever you can
A good position to be in would be to have in reserve the cash you need to run your business for 6 months. These funds are not only for emergency situations but could also help you to take advantage of new business opportunities.
Reducing the amount of cash you need every month is another way to improve your cash flow. Look at every single aspect of your business to see where costs can be cut without compromising on the quality of your products or services
A few examples of what you could do:
– Get additional quotes for all the items you purchase so you can compare and decide whether to switch suppliers. If you like an existing supplier but another supplier has a lower quote, you could use this to negotiate better prices and/or terms with your preferred supplier.
– Look into outsourcing certain tasks so that you can adjust resourcing based on your needs and also eliminate paying as many salaries and benefits. Outsourcing also allows you to bring in resources that are experts in their fields, which can only benefit your business.
– Stock up on items when the cost is lower if they are items that can be stored and if you have storage space. - Play around with timing
Make sure that you collect invoiced amounts promptly and follow-up on late payments repeatedly until you are paid. If the nature of your business allows for direct debits, that’s even better, as the cash will land in your account like clockwork.
Where possible shift your payment dates so that you have cash flow in before you have cash flow out. If you have good relationships with your suppliers, you can negotiate for better payment terms with them. The longer you can hold onto the cash, the better for your business. You will need to ensure that you have the funds to pay when the due date comes, but the longer the money is in your account, the more interest you earn.
You could also consider reducing the frequency of when you run payroll which will reduce all the associated costs. This will depend on the nature of your business and will not suit every situation. - Get finance while the going’s good
Debt is typically seen in a negative light, but it can be used in your favour if strictly managed. You will need to monitor your debt closely to make sure you are able to make the repayments and that you are getting a return on investment for the money spent.
When deciding whether to grant you finance or how much to loan you, lenders will be scrutinising your numbers. The stronger and more profitable your business looks, the better your chances of getting finance. It doesn’t mean that you should use the credit when you get it but having it there if you need it provides a good safety net. It also saves you the stress of a rushed application if you find that you need finance further down the line.
Why not apply for more than you think you can get – it doesn’t hurt to have a larger amount at your disposal should you need it. - Use technology to make life easier
Automation and artificial intelligence (AI) continue to have a huge impact on the efficiency of how we do business. Identify the areas in your business that technology could be applied to do things quicker and more accurately. Some of these areas are administration, accounting and communication. Using accounting software will help you to manage your cash flow more effectively and will make it easier to track over time.
There are so many options out there so don’t feel rushed to select what’s best for your business. It’s better to take the time to do your research so that you can make an informed choice. Using technology will typically reduce your costs significantly and free up time for you to focus on what you are an expert at.
At FutureNow Finance, we can help you by understanding your commercial aspirations and identifying a finance solution to meet your needs. Contact us today if you’d like to discuss your options. Call 1300 013 730 or email hello@futurenowfinance.com.au.
If you know of anyone who needs finance to grow their business, please share our details with them. We are excited to play a part in helping small businesses thrive in Australia!