There’s no getting away from the fact that cash flow is — and always will be — an essential part of operating a thriving business. However, staying on top of the numbers can sometimes feel like a daunting task, especially during key compliance periods like EOFY.
How, then, can you take control of your cash flow? Well, tax time is the perfect opportunity to review your existing systems and processes, and make changes, no matter how small, to set yourself up for success in the new financial year. It all starts with two words: strategy and technology.
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The unfortunate state of business right now is that many owners are struggling due to their customers simply not having enough cash to buy non-essential goods or eat out at a restaurant. According to Sarah Pilling, Partner at Bramble & Briar, we are very much in a two-tier economy.
“What we’re seeing is the really premium, luxury goods aren’t being affected, but everything that’s in the middle is,” she says. “Everybody across the board is seeing sales down.”
So, how can you get your cash flow in order before the new financial year? Pilling says it pays to start with the small things.
“You need to have a good idea of what your cash is doing,” she says. “That means having separate bank accounts for your personal and business money. When you mix that money together, you often can’t see the impending problems before they hit you, which can ultimately mean you end up going down the restructuring path.”
Pilling says that using an accounting software like Xero means you have total visibility over your finances. Then it’s about making sure you regularly review your receivables, your payables and your profit and loss (P&L) so you know exactly what’s going on. Bad debts can quickly spiral out of control, but if you are conscious of what you owe then you can start to put a repayment plan in place.
“You’ve got to be informed to make decisions,” she says. “There’s always going to be some things you can control and some things you can’t, but if you don’t even know they’re happening then you can’t fix any of it.”
By integrating your everyday back-office tasks with a platform like Xero, Pilling says it will streamline all the stressful – and time-consuming – financial jobs. In particular, tweaking your invoices to make it easier for clients to pay can minimise the risk of late payments.
“If you’re invoicing through Xero, as long as you’re reconciling regularly then you can improve your cash flow,” she says. “For example, by adding a ‘Pay now’ button to your Xero online invoices, you can get paid up to twice as fast. We see it with our own clients — we send out payment links on our invoices, and 10 minutes later I get a ping on my phone that the money’s in our bank account.”
With the latest Xero Small Business Insights data showing that small businesses are waiting an average of 22.6 days to be paid, these small changes can make a big difference to the bottom line.
Pilling says there are so many other fantastic features on the Xero platform that can help small business owners get on top of their cash flow. For example, Xero Analytics helps you forecast future trends, check on your financial health and track all sorts of metrics — with the end goal of building a robust strategy to keep your business afloat, even during the lean months.
As you head into the new financial year, it’s a good idea to get on top of overdue payments from debtors. There are several features in Xero that can help with this, like automated invoice reminders, and direct debit apps like Stripe or GoCardless.
“There’s also simple things you can do,” Pilling adds. “For us, so much of our business expenses are software. So before 30 June, review all of your subscriptions. You don’t necessarily have to cancel any, but most will have annual plans you can switch over to and get a big discount. Not only will you pay less over the coming year, but you’ll get the tax write-off for this financial year.”
Finally, Pilling says that the healthiest habit you can take into FY25 is to plan ahead.
“The cash flow tool within Xero can be used to plan all your invoicing and expenses to map out the next few weeks,” she says. “You can then make smarter decisions. You can see where your margins maybe aren’t high enough, or that you’re spending money on something you don’t need to, or that you need to do more marketing. It’s about having the data so you can actually plan for the future.”
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