One of the fastest and surefire methods of failing in business is via less than stellar cash flow - so how do you avoid becoming another casualty?
According to the Australia Bureau of Statistics, more than 60% of small businesses cease operations entirely within their first three years of trading. One of the most common reasons that they fail is due to a lack of cash available to meet their expenses, particularly within the first six to twelve months - and these figures were issued before the arrival of Covid-19. Needless to say, it’s never been more important to properly manage your cash flow - but where do you start?
Why Managing Your Cash Flow Is Crucial
By definition, positive cash flow is the term used when cash coming into the business is greater than cash going out during the same period. More or less, it means that you’re not constantly falling short when it comes to paying for your expenses and are actually able to turn a profit.
Along with staying in the green, healthy cash flow can help your business to -
Identify clear goals to help you to decide on where you want your money to go
Get real clarity on your regular expenses, when they're due, and your spending habits
Analyse where and how you can cut down on operating costs
Enable you to put funds aside to cover you for a rainy day
Educate yourself on the true scope of how healthy your brand’s financials are
If you haven’t done so already, setting up a realistic business budget can significantly help you to feel in control of your finances. Not only will it give you a clear picture of your income and expenses, a budget can also help you to spend less and save more to both achieve your desired financial goals and to turn a profit.
Seven Tips On Improving Your Cash Flow
While tackling the finances of your brand or business can seem daunting, ignoring them entirely and “winging it” can be far more detrimental than most operators think. If you’re done with burying your head in the sand and are ready to start making some changes, the good news is that there are plenty of tried and true methods that can help to improve your business cash flow almost immediately.
Stay On Top Of Paperwork - The cash flow of your business is only as good as your in house accounting, reporting and paperwork, so it’s crucial that you stay on top of this and maintain it. Pay attention to dates, so that you can easily grasp the financial state of your business.
Stick To Payment Terms - All too often, brands fall into the trap of being too lenient with their customers or regular accounts. Unfortunately, all it takes is one late payment from them to throw your own expenses out of sync, so stay on top of what is due when.
Review Payment Methods - In the digital age, consumers expect a variety of payment methods that are both safe, convenient and fast. If your brand or business is using third parties such as Afterpay or Paypal, ensure that you are factoring in the extra fees that they take.
Reduce Overheads - By minimising your outgoing expenses, you’re automatically going to improve your business cash flow. Consider things like utility bills, the price of rent, evaluate your insurance policies, reduce overtime wages, and weigh up if you’re holding too much stock.
Separate Business And Personal - In the early days of starting a business, particularly if it’s a start up or “side hustle”, many operators make the mistake of blurring their business and personal finances. If not separated, it’s impossible to get a scope of your true cash flow.
Have A Rainy Day Fund - A cash reserve provides the cushion you need to manage unexpected events. While it also gives you the confidence and finances you need to grow your business, it also protects you from coming unstuck from a lack of cash flow if you need it.
Keep Accounting Simple - Seek out the services of a professional accountant or bookkeeper if numbers are not your forte. As they are generally experts in the financial side of running a business, accountants can help you to turn things around before they get out of hand.
Sourcing Help With Managing Your Cash Flow
If understanding your finances or the in’s and outs of business finance isn’t your strong point, then it may be reassuring to know that you’re not alone. In fact, many businesses (big and small) enlist the services of an accountant and business advisor in order to free up their time, while knowing that their financial obligations are already taken care of by the professionals.
What you choose to invest in or shy away from as a business owner can have a domino effect that ripples through your entire team - so are you confident in your financial choices?
At Muro, we are more than just accountants - we offer our clients strategic business advice and ongoing support to help them reach their business and financial goals. Get in touch with us at Muro today to ensure that you’re on the right path for success.