Thursday 25th August 2016

Cash Flow is the Small Business Killer


The basis for long term, sustained growth, remains the same whether your company is large or small. It means converting sales into cash flow as soon as possible, while reducing and extending your payments to build a cash cushion.

Implementing some or all of the following tips are sure to boost your cash flow:

1. Anticipate Future Needs

There is nothing more difficult or disheartening than searching for cash when you’re desperate. So avoid surprises. To understand your businesses financials at all times, keeping accurate, timely accounting records is absolutely essential. To project likely results for the next three to six months, use your past monthly income, cash flow statements, and balance sheets to calculate available cash. This will help alert you in advance of any shortfalls, giving you time to prepare. 

2. Build Connections With Lenders

The Bankers are least interested in lending to a company in desperate straits, as their first objective is to be paid back. And the odds of being able to entice investors to put money into your company when you are in desperate need of it are minimal. Build connections in the financial industry before you need its help, not when you need it, and you may be able to secure a commitment for future loans.

3. Keep Cash Working

Keep your cash balances in interest-earning account, which are available at most banks. Interest rates of these accounts are often lower than those of savings accounts, certificates of deposit (CDs), or money market accounts - so consider keeping the bulk of your funds in a higher paying account, then transferring the funds to meet the minimum requirement in your interest-bearing checking account. 

Bi-weekly payroll systems require 26 pay cycles a year, bi-monthly only 24, which means they save the extra administrative costs of collecting, verifying, and tabulating payroll information. So set up a separate payroll account and establish a bi-monthly cycle. Also, transfer payroll funds only just before payment to keep your cash always earning interest where possible.

4. Train Your Customers

The optimal outcome for any business owner is to receive payment prior to, or on delivery, but that is not always possible. Invoice your customers the day you deliver your product with the notion that “payment is expected on invoice receipt.” Don’t suggest that waiting until the end of the month is an option, and include a note in your terms that interest is charged for all payments later than 30 days and collection procedures may be initiated.

To stay on top of your aged debtors, produce a report categorising accounts receivable according to the length of time invoices have been outstanding. Establish a monthly or even weekly process for following up with late payers.  Consistency of process through letters and phone calls is key, while always maintaining firm professionalism. By having early contact with potential delinquent payers, it offers them an opportunity for other payment options if they are having difficulties (such as a payment plan or a credit card charge). Determine how you want to best handle late or non-pays before they arise, document decisions into a company policy, and stick with this process. Remember, a customer who doesn't pay isn't really a customer, but an expense.

Cash flow is the life-blood of an organisation - it’s a means to paying salaries, buying supplies, and making investments in infrastructure. Keep an eye out for Part 2 of ‘7 Cash Flow Management Tips for Small Business Owners’ to come soon.

If you’re stuck in a cash flow rut and need some advice to pull you out, then why not contact one of our friendly team members and arrange a meeting.

We can give you some tailored advice to benefit your own financial circumstances, whatever they may be.

Contact or call (08) 6200 0269 today. 



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