Business Tips to Manage Cashflow
‘Cash is King’ an expression that we often hear from the mouths of your elderly uncle, but no words have ever been wiser in when it comes to managing finances in a business.
Here are some top tips to stay on top of your cashflow.
Invoicing
As soon as you’ve sold a product or service, it’s worth being on the front foot and getting your invoice out early to encourage payment of the product or service. Keeping in mind the payment terms of which your invoice stipulates will dictate how soon the payment will be paid.
Keeping Good Records
Your cashflow is as good as your accounting and reporting. Staying on top of book-keeping regularly with up to date info related to outgoings as well as invoicing ensures that you’re reporting provides for a clearer picture of whats going on.
Some good reporting metrics to review periodically to get a handle of your cashflow include;
- accounts receivables
- accounts payable
- operating margins
- inventory turnover
Payment Terms
Business owners and finance operators who excel at cashflow like to run a tight ship by keeping their accounts receivables short and accounts payable lengthened. The more lenient you are on your customers to pay up, the more pressure it puts on your own business to carry the cashflow burden of the expenses that are now due. Though things like delayed payment terms of Rent or ATO payments during Covid were a blessing at the time, don’t forget that those large payments can creep up quickly and do need paying off at some point.
Don’t Take On (or Postpone) Jobs
On the one hand, making more sales seems like a good way to get through a cash crunch. Additional revenue has to be a good thing, right? Yes, but it all depends on cash flow. For example, to fulfill a client order you may have to invest heavily in people and materials while getting paid months or even years later. If you cannot change these cash flow dynamics, you may be better placed NOT taking on the work or at least trying to postpone the work until a time the business is more secure.
Reduce or Delay Expenses
In the very fluid world of supply and demand, there may be ways to reduce costs to secure the same (or similar) goods or services. This is a matter of procurement practices that should enable you to constantly evaluate options and act accordingly. Sometimes bad habits creep in such as replenishing supplies long before existing inventory has run out. At the same time, consider quality control because there are risks of not maintaining the standards that your customers have become used to.
Build a Cash Reserve
Building a cash reserve provides the cushion to manage unexpected events and also leverage opportunities when they present themselves. Rather than getting stuck in a pickle, a cash reserve up your sleeve is likely to give you more options to be able to dictate business on your terms.
If cashflow forecasting or help managing your cashflow is something your business can do with, don’t hesitate to get in touch with our STS Accounting team.
