Cash flow can make or break a business – so it’s a vital consideration when you’re getting established or growing. The simple fact is that an innovative idea and some hard yakka are no guarantees of business success. You need to have the financial fundamentals right – and cash flow is one of them. These 5 top tips will help show you how.
1. Forecast your cash flow
This one’s non-negotiable! A cash flow forecast is a vital business tool, as it projects the amount of money moving in and out of your business over a week, month or quarter. While a healthy order book can be a great sign, it needs to be weighed up against your operating expenses, like inventory, salaries and tax. Including all items and due dates will help you track and manage your cash, and highlight any peaks and troughs.
2. Stay on top of your invoicing
If you want to keep cash flow positive, you have to be proactive. So start by staying on top of your invoicing. Too many small businesses get wrapped up in their day-to-day operations and neglect their invoicing. This can be a crucial mistake, as it deprives your business of the day-to-day cash it needs to purchase equipment, meet ATO obligations or invest in opportunities.
3. Collect payments promptly
I know, you have better things to do than to chase customers for payment. But (and it’s a big but) your cash flow depends on having invoices paid promptly. So in order to get income when it’s due, here are a few suggestions:
· Offer customers a convenient online payment option
· Set up an automated invoicing system that sends reminders as soon as they’re due.
· Think about offering discounts for payments made on time.
· Consider a mobile EFTPOS machine (if you are a mobile business) that will let you take on-the-spot card payments directly from customers.
4. Consider your credit options
Lots of businesses get cash-strapped from time to time, but the smart ones know in advance how to obtain credit. While some businesses with an established trading history can approach their bank for a line of credit, more recent start-ups may need to approach a lender that specialises in small growing businesses. If you’re not sure which is the right choice for you, why not talk to a Business Finance broker who can talk you through your options? Either way, it pays to plan ahead, and use your cash flow forecast to anticipate any short-term shortfalls.
5. Expect the unexpected
Even the best-run businesses hit choppy waters from time to time – so the key is plan for them. Here are a few ways in which you can cope with unexpected expenses and bridge any cash flow gaps:
· Keep 3-6 months of basic operating costs in reserve for a rainy day
· Consider taking out a business credit card as an alternative payment method
· Be vigilant and keep watch over your cash flow so you can minimise surprises.
Above all, remember that good cash flow management is one of the essential tools that will help you achieve your full potential as a business owner. If that isn’t a good reason to make cash flow king – what is?