According to Business Victoria, 80% of businesses fail because of cash flow problems. Regardless of how profitable you are, or how many investors you have lined up, it’s vital you know how to manage your cash flow so you have a clear idea of the financial health of your business.
Here are our top five money-smart tips to help you optimise your cash flow.
Working capital – the money needed for the day-to-day running of your business – needs to be managed closely. It is essential that you time your debits and credits so that you have enough to cover your expenses each month.
According to the Small Business Development Corporation of Western Australia: “Very few new businesses are profitable as soon as they open their doors; it takes time to reach your break-even point and start making a profit.”
It is for this reason, that close monitoring of working capital is essential. You don’t want to be spending perceived profits if you can’t pay your staff.
A budget – or cash flow statement – will ensure you have the financial resources available to fund your business’s growth.
According to business.gov.au, “This cycle or pattern can help you plan ahead and make sure you always have money to cover your payments.”
It can also be a useful forecasting tool. Looking at past budget inflow and outflow trends can help you forecast any factors that could impact the timing of revenue.
Many small business owners use their personal bank accounts when their company is growing.
However, there comes a point when it’s important to maintain a separate business bank account, especially if you’re trying to claim business-related tax deductions. Unless you’re a sole trader, your business will have to file a separate tax return at the end of the year and it can be a nightmare to sort out business income and expenses when everything’s pooled into one account.
Furthermore, keeping your personal finances separate from your business lends to your branding, credibility and professional image. Using a personal bank account for receipts and payments can concern customers and vendors – they may question your level of commitment and professionalism.
Bookkeepers and accountants can also get confused when sorting through transactions in your personal account, which can lead significant delays, affecting your cash flow.
From internet payment solutions to EFTPOS terminals, you need to offer options that make the payment process easy for your customers. Who wants to wait for a cheque to be processed?
Another way to speed up collection is by providing customers with incentives, such as a discount for paying on time or encouraging customers to pay on the basis that they can receive reward points.
Relying on existing customers can be a trap. If you’re feeling like your cash flow river has dried up it might be time to try to get new customers and grow your incoming revenue.
Look at your marketing strategy, especially your digital presence, and start getting savvy about business development. A refresh may be all you need to grow your business and increase revenue.
Written by: Thea Christie
This material does not take into account your personal and financial needs and/or circumstances, and you should seek appropriate advice (which may include property, legal, financial and/or taxation advice) before making any decisions or acting on any of the information contained in this material. To the extent permitted by law, all members of the ANZ group of companies disclaim liability or responsibility to any person for any direct or indirect loss or damage that may result from relying on the information contained or this site, or any act, omission or error, by any person in relation to the material contained on this site.
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