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Let’s Talk: Cash flow, the big challenge for small businesses
Wed 25 March 2020 - 8:38 amFeatured | Let's Talk
Cash flow is a huge concern for small business at the best of times, however with the unprecedented coronavirus pandemic also, today’s Let’s Talk is especially important. We have made sure to give you the best information possible regarding support during this challenging time, such as:
With many businesses feeling the impact of coronavirus hugely, particularly now with nationwide shutdowns, we are revisiting some of the absolute basics you should have in place to help small businesses pull through financially.
Cash flow will be a struggle for many at the moment, both in terms of business and on a personal level. The stimulus package mentioned above does go into some of the grants and relief available to you, which was announced on Sunday, and this may be of help to you. A lot of this can be accessed in the coming weeks.
Our recent podcast with the CEO of CreditorWatch, Patrick Coghlan, is also a fantastic resource for advice on maintaining a healthy cash flow, monitoring risk and avoiding debt.
We’ll leave it to the business leaders to share their top tips on cash flow below.
Dan Pollard, Founder of job management software Fergus
Get to know your numbers. Understand the different types of work you do and get clear on which types of work make you money and/or what you need to charge to make that work profitable. Once you accept work, communication with your customer is key. Ask for a deposit and talk with them upfront about payment expectations. Follow this up with clear terms and conditions issued upon engagement. Get the follow-up right upon work completion – a happy customer is more likely to pay on time. Invoice as soon as possible and have a process for handling overdue payments, as well as actionable activity for slow payers and non-payers.
Shannon Hautot, Co-founder, Hungry Hungry
When times are good it is easy to let small expenses ‘slip by’. But when times are tough we start to look at all expenses with a view to trim anything that is unnecessary or nice to have. The old saying “Cash is King” has never been more true than now in these uncertain times. In just a matter of weeks the world has changed and it’s a matter of adjusting or pivoting to stay not just relevant, but viable. Now is not the time for trying to maximise profits, it’s all about preserving cash, keeping doors open, holding on to key staff and doing whatever it takes to ride out this global pandemic rollercoaster. Consider communicating with suppliers, banks, landlords, the ATO and regulatory authorities about extending, deferring, reducing or creating payment plans, and doing whatever you can to ensure your business has the ability to trade through.
David Kaunitz, Director, Kaunitz Yeung Architecture
As an architecture firm we often work on long term projects which are completed in stages over months or years. To best manage cashflow we ensure that regular payment installments are built into the contract at the beginning so we are not left out of pocket. For each project, whether it involves employees or contractors, it is critical to understand what time is being spent and how much you’re outgoings are as a % of total incoming revenue and make adjustments where required. As a business owner it is also critical to make sure you are steadily building cash reserves in the business to accomodate for downturns or late payments.
Zane Sabré, Co-Founder and Managing Director, MAISON de SABRÉ
Cashflow is the lifeblood that keeps the heart of the kingdom pumping to build a sustainable and thriving business. For self-funded businesses, maintaining positive cash flow is particularly important as it allows your business to scale without needing to invest more of your own money. It is also important to calculate the risk and reward of all investments. While it can be tempting to spend money on the latest trend bandwagon with the hopes of seeing instant success, you will be more likely to succeed if you have a solid business model that can outlast the seasonal ebbs and flows.
It’s also important to maintain emergency cash reserves to cover unexpected costs during slow periods or in the event of a temporary market downturn. Ideally, this would be about 25% of your business’ annual revenue.Over time, managing your business’ cash flow will simply become another part of financial management, and will soon feel like second nature.
Roger Mendelson, CEO, Prushka Fast Debt Recovery
The first step is safeguard – meaning to carry out basic credit checks when receiving orders. You can also reduce your payment terms, to pay upon completion of the service or within 7 days from the date of invoice. Another important process to implement to protect your cashflow, is to get the invoice out to your customers as soon as you can. Delays in invoicing will ultimately mean a delay in payment from your customer. Deferring any non-essential orders for your businesses will also help, and if placing a significant order you can always request longer payment terms. Make sure your business trading terms include a clause for collection costs in case your customer defaults, that way you’re not wasting hard earned cash on debt collection costs. If your customers just aren’t paying you, make sure to pick up the phone and find out why.
Achieving a steady cash flow is imperative for any successful businesses, it can ebb and flow drastically from month-to-month depending on seasonal trends and consumers spending patterns. To minimise the impact this uncertainty can have on your business, analyse your cash flow over the past 12/24 months to identify your peak and slow seasons. Use that to forecast the year ahead and understand the slow periods, in which to budget, and the busy periods, in which you can afford to store a little extra away to help navigate any uncertain times.
Understanding your cash flow is one thing, but getting paid in a timely manner so you can maintain that reliable flow is another altogether. So provide a seamless way for your customers to pay: make the payment process as simple as possible, send invoices immediately after a job is complete, accept all forms of online payment and even request a deposit in advance if you know there’ll be up-front costs.
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