Cashflow is simply a short-term snapshot of the financial health of the business. As the saying goes, “Cash is king” in every business. So, having a few key business cashflow tips in your toolkit frees up time, keeps the business robust and enables you to formulate and implement strategies for the sustained growth and development of the business.
Cashflow issues can escalate into a make-or-break situation in any business. Did you know that 90% of small business failures occur due to poor cash flow?
Why You Need to Know Your Cashflow
If you’re looking to answer the following types of questions, you should carefully examine your cash flow statement:
- Can I afford to pay my bills, invoices, or other expenses this month?
- Do I have enough cash on hand to pay for that new laptop that because my old one has a broken screen?
- Can I pay my employees this week or next month?
- Am I able to afford to attend that conference in Sydney/Melbourne/overseas next month?
Having sufficient cashflow enables the business to thrive while reducing stress and headaches, bringing peace of mind for the business owner. Businesses who manage their cashflow more efficiently are much more likely to succeed.
Here are 5 key cashflow tips to keep in mind for your business
1 – Ensure strong reporting processes are in place
The key to ensuring continuous cashflow lays in understanding and assessing the numbers.
It’s essential to focus on financial forecasting and cashflow planning/reporting. It’s recommended that you forecast inflow and outflow on a monthly, quarterly and annual basis. With efficient reporting systems in place, checking your numbers at any time should be quick and simple to do, making the exact financial position of your business perfectly clear.
While forecasts are great, it’s important to review and evaluate these on a monthly and quarterly basis to determine what’s working and what isn’t for your business – and make adjustments in line with the actual figures.
The gain a true picture of your financial position, by the end of each month, you’ll need to:
- Process all transactions
- Reconcile your bank statement in your financial system
- Reconcile key balance sheet accounts such as payroll
- Process PAYG, superannuation and the suspense account
- Do a profit and loss review, balance sheet review and accounts receivable/payable review, plus a cashflow review.
2 – Increase Your Prices
As inflation and the cost of living constantly rise, your prices need to be increased as well. Consider increasing your prices by 10% across the board. You’ll find most clients wont’ even notice.
Look at each of your products and services.
- Which products could you potentially increases the price of?
- When was the last time you increased the hourly rate you use to calculate your quotes?
- Is a particular service in high demand?
- If so, could the price be increased in line with that demand?
This is one of the quick and simple business cashflow tips which most businesses can easily implement for instant results.
3 – Improve Your Credit Terms & Stock Management
When was the last time you reviewed your credit terms with clients and suppliers?
Ideally, you want your client terms to be more favourable than your supplier terms, for example, ensure your clients pay on 7 day terms, but you pay your suppliers on 30 day terms. If you currently work on terms of longer than 7 days, advise your clients of the new trading terms and watch your cashflow increase.
You could also sharpen your collection methods on any overdue payments and allocate time or a specific team member to review and follow up aged receivables.
For retailers and product-based businesses, the following tips on managing stock and suppliers can assist with maximising your cashflow:
- Evaluate your payment terms to ensure they are 30 days or more
- Negotiate with suppliers to extend payment periods on larger orders
- Carefully examine your current stock and shed any obsolete or slow-moving stock
- Consider implementing a ‘just-in-time’ ordering system to minimise the stock you hold and free up cashflow
4 – Eliminate Expenses
You guessed it – it’s time to review all your expenses. Aim for a 10% reduction in your monthly expenses.
- Start with your bank statements and credit card statements. Keep an eye out for unused subscriptions and any other non-essential items you can cut from your expenses.
- Renegotiate prices with your key suppliers
- Look for cost savings in utilities including phone plans and electricity – consider changing suppliers if a significant saving is offered
- Check the interest rate on your credit cards and any loans – could you do better with any financier?
- Set up a ‘waste checklist’ which identifies opportunities for cost savings in areas such as insurance costs, wages, supplier invoices (check for over-charging), an increase in bad debts, etc.
5 – Upsell
To increase your cashflow, consider how can you sell additional products or services to your existing clients? Think about the classic McDonalds question: Would you like fries with that?
Is there any opportunity to offer additional products or services which complement those they already buy from you? Ask your current customers what their biggest challenge is right now, then brainstorm all the ways you could potentially solve their problem with your products or services … then sell it to them.
Offer clients the opportunity to book their next hair or beauty therapy session before they leave. Could you or your staff offer consumables at the end of every appointment? Consider offering a package deal for 3-, 6- or 12-months’ appointments booked in advance.
Implement, then Test and Measure These Business Cashflow Tips
Ensure you record, test and measure the strategies you put in place. Look at the numbers in a month’s, 3 months and 6 months’ time to see what’s working to increase your cashflow and what isn’t, then adjust your strategies if required.
By implementing these expert cashflow tips, I trust your financial position will improve and you’ll see increased business growth and prosperity.
If you want to find out more of my handy business cashflow tips, check out the Financial Nous workbook on my website or book a complimentary initial Discovery Call with me.
