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Small Business Advice & Solutions

10 tips for managing your small business’s cash flow

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Managing cash flow is one of the toughest parts of being a small business owner. Between ongoing operational costs, late payments and unexpected bills, it’s sometimes challenging to meet your financial commitments.

These 10 tips give you some ideas around changes you can make to get back in control of your small business’s finances and ease cash flow pressures.

1. Stay on top of your costs

It’s easy to lose track of your spending if work has been hectic, but just a couple of high-cost months can put a significant dent in your cash flow. Keep on top of your expenses by knowing roughly how much you usually spend on regular bills (marketing, couriers, etc.) so that you’ll recognise an unexpectedly large charge straightaway. You should also review operating costs like power, internet and phone regularly to ensure you’re getting the best deal. 

2. Take inventory regularly

Taking a strategic approach to inventory management will allow you to avoid the costs associated with poor stock management. Using an inventory management system, monitoring inventory levels regularly and undertaking a physical stocktake each quarter or half-year will allow you to stay on top of your stock levels and ensure you’re not carrying excess stock.

3. Look for opportunities to rent rather than buy

Leasing your premises, machinery and vehicles rather than buying them outright can be a smart strategy for managing your cash flow. A hire purchase allows you to pay for a business asset bit by bit during the finance term; you’ll then have the option to keep, sell or replace that asset with a brand-new equivalent, meaning you don’t need to worry about your equipment becoming obsolete.

Cashflow Finance offers flexible equipment finance solutions from $50,000 to $200,000 that allow you to preserve your working capital by financing your business vehicles and equipment.

4. Don’t spend on non-essentials

While this sounds obvious, it’s a good idea to consider if your planned expenditure for the next month, quarter or year is really necessary. It can be tempting to spend on non-essential but visible aspects such as signage, sponsorships or rebuilding your website, particularly if your business is new or expanding – but you should always consider these expenses in the context of your financial projections for that period and stagger or delay them where appropriate.

5. Hire consultants

Most small business owners will have areas that they’re not so strong in. Perhaps you’re great at sales but struggle with bookkeeping, or need to invest in marketing but are not sure where to start. Hiring a consultant who’s an expert in the areas you need support with makes good business sense – you won’t have to pay a full-time additional salary ongoing and you’ll avoid the costs of recruitment altogether.

Many SMEs already outsource their bookkeeping and accounting, but marketing, human resources and even business process improvement are some of the functions that can be performed by an external consultant who’s contracted to support you for a set number of hours or days each week, or a specific contract period.

6. Move to a cloud accounting solution

Cloud accounting means that you can access your financials anywhere, anytime. For small business owners, this means you can stay on top of your bookkeeping from on the road, after hours at home, or even while you’re travelling internationally – it’s easy to log in and add expenses as you make them, chase overdue payments or review your profit and loss statement.

Providers like Xero, QuickBooks and MYOB allow you to securely share your financial information with your bookkeeper or accountant so that they have live, up-to-the-minute data at all times. You can also use complementary apps to deliver extra functionality. Some, like Cashflow Finance’s online app, connect directly with these platforms to allow you to check your eligibility and access tailored pricing for debtor finance and equipment finance solutions.

7. Keep on top of invoicing

Efficient invoicing is a must for small businesses looking to maintain a steady cash flow. You should send your invoices as soon as possible, be clear on your payment terms and follow up on unpaid invoices as soon as they become overdue. A cloud accounting solution will allow you to take a more systematic approach to invoicing for your small business.

8. Have a documented debt collection process

A structured approach to invoicing will only be effective if it’s supported by a clear debt collection process that’s actually followed. Late payments can put a considerable strain on your cash flow, so it’s essential that your customers understand that you have a consistent debt collection process and will take action if they haven’t paid on time.

Set expectations early in your dealings with new customers – many will see what they can get away with when they’re dealing with a new supplier.

9. Manage expansion tightly

Many successful small businesses run into serious cash flow problems when they’re growing quickly. While strong growth is a good thing, it carries risk and requires significant effort to ensure it’s well-managed.

Sustainable growth requires considered and consistent investment – you should have a clear plan for returning profits to the business or seeking external funding. A plan for any cash flow emergencies that arise (point 10 below) is an essential for SMEs who are expanding.

10. Have a plan for emergencies

Cash flow shortages are often difficult to predict, particularly if they’re caused by a large unexpected expense or uncharacteristically slow payment from a major customer. You should always have a plan in place to access additional capital if you need it.

Cashflow Finance’s invoice finance solutions allow SMEs to take the pressure off when cash flow is tight. By turning your unpaid invoices into cash, you can access additional funding whenever you need it. Call our team on 1300 760 205 to discuss a tailored debtor finance solution that you can call on when you need it.