Cash Flow Tips

Managing and monitoring the cash inflows and outflows of your business is vital to the success of any business, but particularly SMBs.

Only by reviewing the financial health of your business on a regular basis can a SMB owner be confident they have enough available cash to cover upcoming expenses, payrolls and ATO liabilities.

It is important to have the right balance. Too little cash means your business is unable to pay it’s liabilities, whereas too much cash, whilst attractive, can mean your business may be missing out on other opportunities, such as investing.

Some of our tips to help improve cashflows are:

Embrace Bookkeeping

only by keeping your books up to date, can you have an accurate idea of the health and position of your business. This is a vital component in any business, large or small, as only with reliable and up to date data can you make informed decisions.

With this in mind, we would recommend reconciling your accounts at least weekly. And then sit down with your bookkeeper or accountant on a regular basis and ask questions, make sure you understand what the numbers mean. Only then can you feel confident you can afford that new sales manager, or have the cash inflows to pay for a new delivery van that you need so desperately.

Proactively Managing Debtors

is a key component to improving cashflows and ensuring your business is in a positive cash position. Putting proper controls in place will help manage this process, including having a very clear and agreed to payment policy.

Here we recommend automated emails to be sent out, to remind debtors when payments are overdue.

Sending out regular statements and giving your customers several options to pay your invoices can also speed up payment (see our recent blog article for payment option ideas). Make it as easy as possible for your clients to pay you, and you will see your bank balance grow!

Finally, get in the habit of regularly reviewing your aged debtors report. A personal call to a client can go a long way to understanding their position and getting paid.

Getting on Top of Super and ATO Debts

can ensure you are not left panicking when payments become due.

Knowing when these debts are payable and planning ahead is imperative. Putting money aside is a good way to ensure these debts are covered when they arise. Or creating a separate bank account and transferring money at the start of every month is another way to ensure there are no nasty shocks.

If you are unsure when these debts are generally payable, speak to your bookkeeper or accountant. Ask them how you can better plan so there are no more nasty tax shocks.

Treat Yourself as an Employee

and get into the habit of paying yourself a regular salary. Too often we find clients build up director’s loans by withdrawing money from the business for personal spending. These ‘debts’ can be seen as an interest free benefit to the director and there are suddenly Division 7A loan complications to worry about at year-end.

Paying yourself a salary will ensure that you get into a habit and adapt your lifestyle to what your business can afford. It allows you to deduct and pay PAYGW on a regular basis, meaning less chance of a nasty tax debt, whilst also ensuring you pay superannuation into your designated fund on a regular basis. Super is often an area that small business owners forget, which can have nasty consequences the closer they get to retirement.

Forecast for the Future

and get into the habit of understanding the reports from your bookkeeping system. Knowing what the difference is between a Cashflow & Profit & Loss report can help you plan for the future. Reviewing these reports, in conjunction with a Balance Sheet report, will really allow you to understand the health of your business, and help you to plan for the short, medium and long terms.

If you are not sure how to create a cash flow forecast or budget, speak to your bookkeeper or accountant. Information from your current bookkeeping system can often be used to quite easily create a meaningful report so you can see where you business might be heading.