Cashflow management is a key concern of small businesses. A survey conducted by Reckon this year showed cashflow management was the third biggest concern among business owners behind staying in business and increasing profits.
During the GFC, many businesses, large and small, were forced to cut staff and/or reduce expenses to improve their cashflow position. With cashflow still front of mind for small business owners, now is an ideal time to implement effective cashflow management strategies to sustain the business through all economic cycles.
Incorporating an effective strategy to improve cashflow in the business can give business owners greater confidence in their success in the future and lessen anxiety around how they will meet fluctuating demands on cash.
So what strategies can you implement now to help the business in the future? How do you improve your position now?
Know your financial condition
Regularly assessing the cashflow in your business is important to fully understand where you are at now and have a clear indication of how your business is likely to travel in the future. Start your cashflow management strategy by having an honest look at your business. The only way to get a grip on your cashflow status is to maintain good business records that capture all money coming in, and going out of the business.
Accounting software is the easiest way to get a clear picture of where your business is right now. Establish the discipline of inputting receipts from customers and payments into your accounting software on a regular basis. Once you have captured all your revenue, costs and capital requirements you will find it easy to get a picture of the financial health of your business. Plus you’ll be able to use this information to create budgets and forecasts to provide a clear picture of your future cashflow position.
Business accounting software has the functionality to run reports and create graphs that give you short and long-term analysis of your business health. You can also see your daily cash movements and undertake projections that will help you identify the sustainability of your business.
Dealing with your debtors
Getting customers to pay on time can significantly impact your cashflow. Some key ways to improve cash inflows is to have clear agreements with clients and make sure invoicing is completed on time and any disputes are resolved quickly.
When agreeing on a new job, have clear expectations set out in writing. This will include what work is to be completed, the time it will take and the expected costs. If the job is expected to take a number of weeks or months, agree on regular progress payments that will ensure that you don’t need to carry the ‘cost’ of the job for an extended period of time.
If you have money owed to you it is essential to send your invoice on time. If payment isn’t made by the date you expect, follow up with a phone call. You may find the client has simply omitted to pay the invoice or there may be an issue with the invoice. If there’s a problem with the work that was done this might be an opportunity to discuss the problem and come to a suitable agreement so you can get paid for your work.