Seven Tips To Manage Your Cash Flow
“Never underestimate the value of cold cash,” said Gregory Nunn. That of course, referred to having actual money – coins or notes.
Now we see money as figures in our online bank account. But whether you have cash in your wallet or in your bank account, it all means the same thing. Money pays bills. It pays the ATO. Pays your employees. And it buys stock.
Money keeps you in business. But if you don’t have enough – if you have a cash flow crisis – your business could sink. So it’s vital to understand your cash flow, watch for warning signs, and take swift action to restore it to glowing health.
Here are our 7 cash flow tips.
1. Know the Basics
If financial statements have you running for Netflix, relax. Your financial statements take the temperature of your business. They show you if its vital signs are all stable, or if you need to call a financial health professional, like your bookkeeper or accountant, to get it in the pink again. So read them often, and make sure your cash flow is healthy.
2. Monitor your cash flow
Now that you’re a dab hand at reading your financial statements, and know how your sales and expenses have been tracking, it’s time to forecast your cash flow. This is easier than you may think.
Your income and outgoings fluctuate at certain times of the year. So forecast your income and expenses for a month ahead, taking into account your financial data from the same time last year. Planning ahead means you can identify times when you need more income because of increased outgoings.
3. Develop good cash flow habits
Forecasting helps you know when you need a better cash flow. When you have to generate more than you spend. But good habits can help you cut costs. If you sell products or services, you could upsell or offer specials that generate sales and revenue. Negotiate special terms with your vendors. Liquidate any obsolete assets or inventory, and try to build a cash reserve.
4. Watch for cash flow crisis warning signs
20% of businesses fail in their first year – and around 60% will go bust within their first three years. (Business Startup Statistics Australia [2021 Update]). Sobering figures indeed. It’s said that lack of business experience, cash flow problems, overuse of credit and inadequate provision for tax payments are the main reasons. So if you watch for the first warning signs of cash flow problems and then take action, you could save your business. Do you always have to wait more than 30 or 60 days for large payments to come through? Are you missing out on some supplier discounts? Or have too much inventory and sales are down? If you need advice, now’s the time to talk to your bookkeeper or accountant so you can keep your business ticking over.
5. Grow carefully
It can be very tempting to grow your business quickly. But that comes with risks, because if you want to sell more, you’ll need to spend more. Spend more on stock. Spend more on hiring more staff.
Speculate to accumulate may be a saying that you use to back up your decision to grow fast, but that could send your business under. Unless you have the capital backing, grow carefully. Watch for any situation that could cause you financial risk like a hawk. And when in doubt, don’t. Manage your cash flow like a pro and take your business slowly and solidly into a cash flow positive future.
6. Invoice faster
Don’t wait to invoice your clients. As a small business, you should invoice your clients as soon as the work is done or they’ve made a purchase from you. And offer your clients multiple online payment options, such as Stripe for credit card payments, or PayPal, or bank transfer. The easier it is for clients to pay, the faster you’ll get paid.
7. Use technology
There are many online tools that can help to improve your cash flow. Some send invoice reminders to customers who miss their due dates. Others help you to project your cash flow and alert you to any problems.
At Vivid Enterprise Solutions, we love nothing more than seeing your business thrive and your positive cash flow keep flowing like a well-oiled machine. We’re here for you, to check the pulse of your business and keep it in glowing, growing health.
Give us a call on 03 9068 5636 or book in a free consult and discover the difference Vivid can make to your business.
We’re steady. True. Dependable. Logical.