Cashflow can be one of the most challenging parts of running your small business.  How often have you looked at your reports and thought ‘That can’t be right!  How can my P&L be showing a profit but I never have any money?” 

Building strong cashflow is essential for the success of any business, particularly in the early years.  Taking the time to review your processes and implement some practical steps will help relieve the cashflow pressure.

Keep Business and Personal Separate

Whilst some business structures allow the business owner to be paid a salary through payroll, many small business’ will simply use the profits from the business as their income.  It can be very tempting to use your business account for personal transactions, however this can create unnecessary additional work and skew your perception of how much profit your business is making.

If you are unable to pay yourself a salary through your business (ie sole traders), get into the habit of making regular transfers to your personal account for a fixed amount.  It’s important this amount be realistic based on the profit of your business. Do not use your business account or business credit cards for everyday transactions. 

Keep Your Books up to Date & Review Your Profit & Loss Statement Regularly

Taking the time to keep your reconciling up to date and monitor your profit & loss report is key.  By having accurate reporting you will be able to monitor much more closely how much money you should have vs how much money you actually have. 

Stay on Top of Your Invoicing

If your business receives income through invoicing for your goods and services, it’s crucial this is prioritised!  Ideally your sales should be invoiced at completion, however this is not always possible, particularly when you are working in the business.  Set aside time each week to keep on top of your invoicing.  Or get a bookkeeper!

Stay on Top of Your Debtor Management

Drawn out payment terms pose a significant threat to small business.  Regularly review your outstanding invoices and don’t leave too long to follow up.  Most online accounting software has tools built in to assist with this, including automatic reminders.  You may also need to consider your clients value to your business.  If they are continually not paying on time have a conversation with them.  It might be time to reconsider the value they bring to your business.

Keep a Personal Budget

We’ve all heard the common misconception that if you own your own business you must have plenty of money – if only that were true!  Tracking your personal spending more closely can help your business cashflow by reducing the amount required for your lifestyle.

Account for ATO Payments

Set up a separate business account to transfer money for your future BAS, IAS and tax obligations.  The ATO are being less lenient with over due payments so it’s crucial you have funds available for the payments of your obligations on time.

Shorten Your Payment Terms

Consider reviewing your payment terms.  Most business’ now only offer payment terms of 7 or 14 days.  Can you really afford to wait 30+ to be paid?

Offer Online Payments

Online payments are easier to set up and maintain than ever.  Consider using an online merchant facility such as stripe or paypal to receive payments faster.  You can integrate your chosen payment platform to your online accounting software making it easier for your customers to pay on time.  Platforms such as Pinch Payments and Go Cardless also allow customers to set up direct debits and payment plans.

Review Your Pricing

How often are you reviewing your pricing model?  It can be uncomfortable passing on pricing increases to customers; however it is also important to ensure you are valuing your business correctly.  Monitoring your time and costs will enable you to track profit more closely. 

Negotiate/Review Expenses & Loans

We’ve all done it – every month when we see our payments come out of the account for regular expense such as insurance, electricity and telephone we think “hmm could I be getting a better deal?”  Take the time to review your policies and contracts and negotiate better rates for your business. 

This also applies to loans.  Are you getting the best interest rate?  Can you combine some of your loans for a better rate and reduce your payments? Taking the time to review could potentially save your business thousands of dollars.

Prepay Accounts

Setting up regulary weekly, fortnightly or monthly payments for your regular expenses can really help to avoid bill shock.  Start making regular direct debits to your electricity account for example so you’re not stuck with a big bill each quarter.

Look Out For Excessive Subscription Fees – Are They Beneficial? 

This is not only relevant to your business but your personal expenses also.  Review your subscriptions charges and ask yourself how much value they bring to your business. 

Budget Forecast – Monitor!

This can be a time consuming task but it is essential for any business struggling with cashflow.  It can also be quite confronting to see just how much the running costs of your business are.  The most important thing to focus on with a budget is monitoring. Regularly review your budgeting cost with your actual costs and you will soon see where costs can be cut.  Many costs in business are unavoidable so it’s important you look not just at your expenses but also keep track of the revenue your business needs to produce in order to be viable.

Monitor Stock on Hand & Purchases

This is a big one!  Keeping on top of ordering and stock levels can be very time consuming and it’s easy to over order.  Take the time to check your stock levels regularly to avoid over ordering.  Make staff aware of your expectations regarding stock levels and get them involved.

Priotise Paying People

This may sound obvious but it’s very important to maintain good relationships with suppliers.  We’ve all heard stories of ‘bad payers’ and no business owner wants to have that label attached to their business.  If you are in a difficult situation with your cashflow and know you will be unable to make you payment commitments, communicate with your suppliers and negotiate a payment plan.

We see the stress business owners deal with when it comes to cashflow – it can be very detrimental not just to your business but on a personal level as well. There are a range of software options available to assist with cashflow, stock control and payment services.  With some careful planning and commitment to change your business can thrive! 

Talk to us today for help on implementing strategies to help you improve your cashflow and sleep better at night!