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Running a business

Tips to help you manage your cash flow

Every small business needs consistent cash flow to survive. Not surprisingly, poor cash flow is often cited as being one of the top reasons for business failure in Australia. Without money being transferred into your business, you’ll find it hard to grow, or even operate effectively. Luckily, there are ways you can manage your cash flow with ease to ensure your business thrives.

1. Analyse your cash flow and make predictions

Take a look at your business (or enlist the help of an accountant) and find places where  money is coming in and going out. This could include your operating expenses, inventory held, and accounts receivable/payable. If you use accounting software, use it to generate instant reports, such as your balance sheet (which will help you analyse past trends in your accounts receivable and payable, and operating cash flow). Use these reports to make predictions for future cash flow and prepare accordingly.

2. Review your processes

Check the processes that could be costing you and the ones you can improve on. For instance, do you have a system that ensures you invoice on time and get paid on time? Some accounting tools, like QuickBooks have automatic invoice functionality and online payments (with payments partners PayPal and Square) to make the process easier for you and your clients. Are your stock control methods efficient? Consider connecting your point of sale with your accounts to accurately control inventory levels.

3. Minimise your expenses

Implement a few cost-saving initiatives to help improve revenue and keep cash flow positive. This could be as simple as reducing utility bills by ensuring lights and electronics are turned off when not in use. Cut back on rent by sharing office space when possible or working from home for a while. Evaluate your monthly subscriptions and fees to make sure the things you’re paying for are all still necessary – even minor expenses can add up!

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4. Negotiate better payment terms with suppliers

There’s usually a better deal to be made, so regularly negotiate (or renegotiate) with suppliers to ensure you’re getting the best one. Consider their payment terms in your negotiations, as how much time you have to pay can greatly influence your cash flow. Find out if you can pay at quarterly increments, extend the payment days, or begin the payment term only after delivery.

5. Ask for a deposit

If you offer products or services that require substantial cash or effort before you deliver, consider asking clients for a deposit. This will not only help to instantly increase your cash flow, but it will act as a safety net in case any issues arise that may delay or hinder full payment.

6. Build a cash reserve

You never know if you’ll fall on hard times, and for that reason it’s wise to have a back-up plan. Try and put away money each month in a personal savings account, only to be used for emergency situations. An overdraft or a revolving credit facility can also act as a ‘plan b’ if you need it. You’ll sleep better knowing you have some sort of buffer.


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