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Tips To Keep On Top Of Your Cashflow

"Never take your eyes off the cash flow because it is the lifeblood of the business." - Richard Branson

We have all heard the quote 'Cash flow is King' and that is the truth when operating a healthy business. Did you know that a whopping 82% of businesses and start-ups fail due to cash flow problems? That is massive to underline the cause being how a business controls its flow of cash. What can be some of the triggers to cause a cash flow problem?

  • Slow paying debtors - waiting for invoices to be paid can be tough whilst still having to pay your employees and your operational costs. Have you looked at creating a system to follow up an unpaid account by sending an email, a statement, or a phone call? Look at your payment terms, can you really support 30-day terms knowing that many debtors can take longer than that to remit the balance? Try reducing it to 7-day terms. Is there an incentive to pay on time like a trade discount or an arrears fee?

  • High overheads - costs of running a business that is not directly associated with producing revenue can impact cash flow - loans, premise rents, bookkeeper's wages, frivolous spending of goods that can be tax deducted but not really utilised for the business purpose or is still sitting on a shelve unused.

  • Insufficient profit margins - not allowing for enough profit after costs associated with a sale to support other operational or tax costs to keep the business viable.

  • Excessive inventory held - is your business holding onto too many assets that are costing? Too many vehicles or plant equipment that is seldom used can increase costs of insurance, registration, preventative maintenance and normal wear and tear costs.

  • Mismanagement - do not try to grow your business faster than it can support. I have heard of owners hiring more staff and resources to hunt down and be ready for extra work, but if you have gaps already in your weekly schedule, you'll have even more gaps there if your duplicate your staff roles. Instead, work on known maximised periods to duplicate and retain the rest of the work periods just the same until they begin to also maximise.

  • Bad Financial Practices - It is always wise to put a portion of revenue away each week into an interest-bearing account that can grow. A savings buffer should be available at all times of approximately 3 months of average monthly revenue. Every business experiences cash flow fluctuations and being an owner of a business requires that you have taken reasonable steps to be prepared.

Some ways to improve your businesses cash flow can be:

  • Ask for payment up front and be prepared to accept all types of payments, or if on an account, send the invoices immediately after the work has been completed.

  • Pay less for your cost of goods, premise rents, loans and general expenses. Wages are one of the highest expenses a business usually has, look at strategies to reward great workers and limit hours to unproductive workers.

  • Conduct a credit check on new account customers. In the long run, we want our profits to come to us instead of being swallowed up on following up and hiring debt collectors to acquire the balances.

  • Pay bills within your means. I know this can be tough to do, but you need to pay the bills with money you have and not with your reserves. A kind phone call to advise you are aware on a bill and will make means to sort it out as best you can will reduce the stress and harm to your reputation than when a supplier has to follow up arrear payments on you!

How to be ahead of the game in preventing cash flow problems from arising?

"This is, by far, the most important reason for a cash flow forecast. Make sure that the business can afford to pay suppliers and employees. Suppliers who don't get paid will soon stop supplying the business; it is even worse if employees are not paid on time." - Apr 1, 2009 Tutot2u Business

Cash flow forecasting:

  1. Open a spreadsheet and utilise your historical reports to identify revenue and the number of sales for the business. Forecast against know conditions whether income and sales will remain stable or are predicted to rise or fall.

  2. Add projected month by month of income and expenses and calculate how the income will perform - revenue minus expenses.

  3. As each month is completed, overtype the actual figures and add a comment of what occurred each month to cause that figure. Your cash flow figures will update if you entered the formula to keep track of.

Don't be like the 43% of businesses that are feeling like they are always juggling their finances. Reducing stress allows for better decisions where you are no longer forced to react. But, having a plan to carefully predict and update your cash flow optics will eliminate poor decisions when you can clearly see through historic reports what is in store for that month of trading and what practices worked well for trading on other months.

If you have found this article helpful, you'll also enjoy my fortnightly mentor group emails. It is a conversation on how we can do business better, level up personally and reach more financial goals. Come join me here.

Meg Hogan x

Meg Hogan is a #1 Best Selling author in Australia and US for 'Get Rich Be The Voice' and a Business Coach helping owners maximise their business potential to be in the best possible position to reap more revenue and retain more personal wealth. With her 100% money-back guarantee of satisfaction, she gives certainty to her clients that their best interests are at heart. "My door is open or anyone who may wish to discuss their business challenges in hopes of finding some practical solutions. Book a free call to chat on what I can offer you, and walk away with at least 3 things you can do now to improve your situation."

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Hogan Arboit Pty Ltd., Bowen, Whitsundays QLD 4805, Australia

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