10 tips to improve your cash flow and stay on top of your finances

Posted 24 Feb '20

10 tips to improve your cash flow and stay on top of your finances

By D'Lene Browning

One of the common challenges small businesses face is cash flow.

Being able to effectively manage your cashflow is key to the long-term prosperity of your business. Poor cash flow can result in your business lacking the required resources to grow, pay suppliers or cover immediate costs like wages and rent.

Here are 10 tips to assist you manage your businesses cash flow and keep on top of finances:

1. Cash flow budgeting

Look at how much cash is coming into and going out of your business each month by forecasting your sales from your sales patterns and anticipating when your payments are due.

Regularly updating this forecast will enable you identify when you will have extra cash available or are likely to experience shortages and provide warning signs to avoid future financial problems.

The use of technology can make it much easier to manage cash flow. Cloud based accounting can save you time, allow you to work more effectively and keep a better track of your business cash flow. It can let you see at a glance your cash flow position.

Compare your budget to actual results and learn from any variances.

2. Understand your cash flow needs

Ensure that you clearly understand what the working capital requirements of the business are and what impacts the business decisions you make have on that working capital level.

3. Allow a sufficient buffer for growth

If your business is in a growth phase, you will need to ensure you have sufficient cash reserves or unused finance facilities to fund that growth.

4. Setup a credit control system

It is important to stay on top of your paperwork and send out your invoices promptly. There are several cloud-based accounting software options that allow automation of this process and can help with the headaches it can create.

Set clear credit limits and payment terms for your customers from the outset and make the invoice clear and easy to understand.

Firmly chase all debts when they are due. Send reminders, monthly statements or make a phone call.

5. Offer a variety of ways for customers to pay you

Provide a variety of payment methods for your customers and ensure you list the correct payment details on sales invoices. The more options you offer, the more likely it is that a customer will pay you.

Try to avoid being paid by cheque as it will result in delays before the money is available in your bank account. Online payments are a much better option.

Try to establish direct debit as a business norm for collecting receipts.

6. Cut unnecessary costs and spending

Being lean and mean is essential when it comes to spending in your business. Work out what you really need. Know where your cash is going and try to get value for your money. Invest in areas of your business that will generate you leads, brand exposure or business.

Review your business costs. When subscriptions, insurance renewals are due for example, investigate your options.

7. Negotiate good terms with suppliers

It is worth asking suppliers if they can extend payment terms. If you can negotiate to settle your bill in say 60 days instead of 30 days, this means that you can keep the money in your account longer and gives you time to recoup the payment via your sales if you need.

8. Manage your stock

Monitor stock closely and only order what you need. Work out what sells quickly and profitably. Having money tied up in slow moving stock can create cash flow problems. Invest in popular items and consider lowering the price of slow-moving products to generate a return of investment.

9. Review pricing

A new year is the perfect time to review your pricing structure to ensure you’re not undercharging. You could also consider ways to repackage your goods or services to charge a little more.

10. Open a second bank account for PAYG withholding tax, Superannuation and GST obligations

Something as simple as opening an additional bank account for your tax obligations can ensure that you always have enough funds present when debts fall due. Best practice would be to transfer the payroll obligations immediately into this account after each pay run to prevent the usage of funds unnecessarily.

We work closely with our clients to assist them in cash flow budgeting, monitoring and cash flow management.  If you would like some assistance in this area, please do not hesitate to contact us.