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Welcome back everyone. In the sixth and final part of my blog series, I want to discuss something that affects all of our financial journeys: Superannuation. Perhaps you’re concerned about your retirement savings? Or maybe uncertain about how to make the most .....
Good cash flow keeps the engine of your business humming along at a comfortable pace, but poor cash flow can make your business stall and sputter. Some industries have bigger cash flow challenges than others, especially those industries that are seasonal in nature. Regardless of your industry, however, the following 5 tips can help you to reduce sporadic cash flow and stabilise your company’s finances.
It’s not uncommon for new business owners to neglect bookkeeping while they’re focused on other aspects of running their businesses. After all, sales and services drive profits, and without profits there’s no point in bookkeeping at all.
This is understandable, but neglecting your books will lead to trouble ahead. For example, if you fall behind in your bills, you may not be able to order the supplies you need to keep producing sales. Before long, this cycle will drive your business into the ground.
Spend the time necessary to create a consistent invoicing system, to reconcile your invoices, and to put robust financial systems in place. Robust systems lead to strong cash flow and a solid foundation for your business.
Bad debts - amounts owed by your customers that cannot be recovered - can weigh your business down and keep you from meeting your own obligations. A credit control system can help you to collect money owed by your customers. It’s best to put a credit control system in place when you’re first starting out, but it’s not too late if you haven’t yet done it.
Credit control systems can be as simple as sending out reminder letters and emails when accounts become delinquent. Conducting credit checks before doing business with customers is another way to avoid incurring bad debts. You may also want to start asking for deposits up front before offering credit. All of these actions can help you to get rid of bad debts and reduce sporadic cash flow.
If your company’s credit terms are out of sync with your suppliers’ credit terms, you could build up a negative cash flow that snowballs over time. For example, if you give your customers 45 days to pay but your suppliers want to be paid in 30 days, a cash flow problem will ensue.
The best way to sync credit terms is to renegotiate your terms so that your customers are on the same schedule as your suppliers. This may take some time, and you may need to offer early settlement discounts in order to get your terms squared away (for example, a 3% reduction in the invoice for paying early), but once you’re synced, your cash flow will stabilise.
Growing your business is probably one of your highest priorities, but growing too quickly can lead to substantial cash flow problems. For instance, if you accept a large quantity of new work, you’ll probably have to hire extra staff members to fill orders. You won’t get paid by the new customers until the work is completed, but you’ll have to pay your new staff members in the meantime. You’ll be upside down for some time.
You can fix this problem by accessing a line of credit or obtaining a short term loan, but this can be risky. The easier way to deal with this problem is to grow a little more slowly, building up your cash flow before you hire new workers.
If you don’t have the means to create cash flow forecasts, hire an accountant to create them for you. With a cash flow forecast, you can see which months of the year you can expect to face a cash deficit and which months you’ll see surpluses. This information can help you to hold over funds from surplus months to cover deficit months, and it can also give you insights into your business when you compare the forecasts to the actual figures.
Not only can a cash flow forecast help you to even out your cash flow, but it can also help you to make important decisions such as when to make capital purchase and when to cut expenses.
By reducing sporadic cash flow and maintaining a healthy equilibrium, your business can enjoy the benefits of increased stability.
Set your business on the right path with this simple guide.
Make sure you’re on the right track with this online checklist.
© 2022 Altus Financial, All rights reserved.
Altus Wealth Pty Limited ABN 55 649 956 212 is an Authorised Representative of Altus Financial Services Pty Ltd ABN 24 637 026 825 an Australian Financial Services Licensee (AFSL no. 520266). Altus Financial Services Pty Ltd is not responsible for the advice, products and services provided by Altus Accounting. Julie Azzi is a credit representative (CR No. 366834) of BLSSA Pty Ltd ABN 69 117 651 760 (Australian Credit Licence 391237).
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