Cashflow! Managing the money coming in versus the money going out and getting the timing of this to all line up can be stressful. Cashflow is critical and is one of the major factors in business success and failure.
So how can you avoid a cashflow crisis?
1. Ensure that you know all of your expected expenses. Map them out and know when each them is due. Don't forget your largest debtors such as the ATO and implement a cashflow forecast that includes IAS/BAS/Tax obligations.
2. Forecast your cashflow. List all the income you expect to receive over the period that you are forecasting. Be conservative with your collections where possible so that you know have worst case scenarios in your forecast covered.
3. Identify areas and times where you feel that you might encounter a cashflow problem.
Firstly understanding your position and what money you have coming in and going out can help you see where you might have problems. Identifying these a couple of months out can give you the time to put strategies in place to manage this.
Cashflow strategies to consider
1. Can you change your invoice frequency? If you currently invoice monthly, can you invoice your clients weekly or fortnightly? This will mean that you are getting more money throughout the month rather than all at the end.
2. Do you charge in advance or arrears? If you charge your client in arrears (after the work has been completed) can you start charging in advance? This will give you the money up front to pay for any materials or staffing costs that go into providing the goods or service.
3. Payment terms and methods can also help cashflow. Change your payment terms from 14 days to 7 to improve payment regularity. Providing a range of payment methods can also help you with prompt payments, especially accepting credit cards and enabling direct debits can assist with collecting money.
4. Make sure you don’t withdraw money from the business if cashflow doesn't permit. Your cashflow may be positive one month but effected in the next. Make sure you stick to what you have forecast to ensure that any surplus meets your ongoing cashflow needs. .
5. New products. Look at ways that you can introduce new products or services that might provide better cashflow. These might be products or services that you can be paid for up front and don’t require large outlay to produce. These can help even out the cash flow for products and services that are more complicated.
If you are struggling with cashflow then make sure you speak to one of our financial experts. Our accountants will be able to help you identify the cashflow pain points in your business. We are also experienced and able to help you determine the right strategies to improve your cashflow.