Tips for Improving Your Cash Flow

One of the concerns that I hear the most from small business owners is their lack of cash flow, so it’s not surprising that 86% of business owners reported that their cash flow concerns were affecting their personal or home lives (NAB survey).

Your business success is dependent on good cash flow management so here are some tips on ensuring a healthy cash flow position.

A Cash Flow budget

Preparing and maintaining a cash flow forecast doesn’t need to be difficult. As it is only a best estimate anyway, keeping it simple will help ensure you keep it up to date and use it to identify potential problems.

Simply begin by adding a cash on hand figure at the start of the period (probably monthly but could be weekly if a tighter system is required) with cash you expect to receive in. Then add the amounts and dates when you will have to outlay cash. At the end of each period roll the closing period figure over to the new period.

Where possible look to automate or systemize the process of collating the necessary data needed to build an accurate, easy to maintain forecast.

Review Your Costs

All businesses have a combination of fixed and variable costs. Make it a regular part of your battle against poor cash flow to review your expenses. Look to eliminate the non-essentials and consider ways to reduce the cost of essential expenses.

 Creditors

Most of your major expenses will require the payment of a creditor. In relation to your creditors you can improve your cash flow by considering these simple steps:

  • Paying accounts on the due date rather than before the due date
  • Entering into scheduled payment options to spread the repayments which may be preferable to paying one large amount at a time that might not be convenient to you
  • In times of difficulty asking for an extension on the terms of payment

Debtors

One of the biggest problems for small businesses is the slow payment of accounts. Speeding up the payment process will make a substantial difference to your cash flow position. In our April 2010 edition I outlined 10 tips for handling debtors (click here to read), essentially getting debtor levels down revolves around strong systems and good communication.

 Managing Cash Shortfalls

At some point in time most small businesses will experience a period where they are caught short on necessary funds to keep the business operating. Apart from chasing debtors to bring in payments or extending supplier terms establishing, a line of credit from the bank maybe the only viable short term option. Using your cash flow forecast you should be able to give the bank plenty of notice and provide evidence of when the funds will be paid back.

If you are one of the 86% of business owners worried about cash flow there is plenty you can do to rectify the problem. The solution may be as easy as contacting the team at Watts Price Accountants!

Richard Kemp – Watts Price Accountants
E: richardk@wattsprice.com.au

The advice provided on this Article is general advice only. It has been prepared without taking into account your objectives, financial situation or needs.