How to Manage Your Cash Flow + Grow Your Business. At the Same Time!

Growing Cash

What counts that we are not counting?

Chip Conley, head of global hospitality for Airbnb

Cash flow management isn’t just essential to keeping your business above water. It’s critical for your business to actually grow and thrive. In a time when Australia is facing economic uncertainty in light of the COVID-19 pandemic, it’s now more critical than ever to adopt robust – indeed, flawless – cash flow management practices.

Mastering this will facilitate the success of your business – no matter its size.

It’s likely you’ve heard about this many times before, but it’s time to take real action. Poor cash flow management leads to stress, toxic relationships with clients and suppliers, losses every financial year and ultimately the end of your business. Get into the habit of good cash flow control today, and watch your company succeed as time goes on.

If your cash flow is at risk already, or if you’re just looking to get your company’s money in order, you’re in the right place. Below, we’ll outline what you need to know about managing your cash flow and growing your business (all at the same time).

What is cash flow management?

Cash flow management refers to the process of tracking the money that’s entering and leaving your business.

Underpinning the concept of cash flow management is looking into the future – being able to reliably predict how much cash you’re going to have at some point later down the track.

It allows you to monitor debts, pay employees on time, chase up unpaid invoices, pay your suppliers, pay your taxes and pretty much everything you need to do when it comes to dealing with your company’s money.

Keeping track of the flow, analysing the changes as they come, identifying patterns and putting out fires are all key skills you’ll need to master when putting good cash flow management skills into practice.

It keeps your business running on the right track – up a financial mountain, rather than down into a bottomless (and moneyless) trench.

Why is cash flow management important?

Cash flow management is vital because it makes sure you will always have enough money available in the bank to pay your debts when they become due and payable. It doesn’t matter if you’re making millions of dollars in profits. If you don’t have enough money to pay back your suppliers, employees, lenders or whoever, your business will not survive.

But the benefits of cash flow management are much more valuable than most small businesses realise.  Controlling cash flow is critical because it creates what every business owner wants: piece of mind.

Let’s face it. Running out of money is incredibly stressful and extra pressure does absolutely no favours to the hardworking entrepreneur.

Having a robust cash flow strategy in place will always put your company into the position where you can take it to the next level. Tackle discrepancies immediately, pay bills on time, get paid on time and work your way towards that entrepreneurial dream.

Your best cash flow management strategies

With that in mind, we’ve outlined some excellent cash flow management tips you can use not only to keep your business afloat, but to actually make it expand.

  1. Get all your books accurate (don’t yawn)

This is not as boring as you think.

Your cash flow is only going to be as good as your reporting and your accounting. We cannot stress how important this is.

Don’t ignore your books and dismiss it as some menial administrative process. You need to be checking your numbers on the regular.

That way, every single time you glance at your books, you’ll be looking at an accurate picture of your finances.

  1. Don’t let your customers always win

Don’t let your customers and clients get away with being slack on your invoices. There’s no need to harass them, but there’s every need to be firm. This is especially if they aren’t paying you on time on a regular basis.

Do not be afraid to take formal action as a last resort (and we mean, don’t be afraid to start citing clauses of contracts and even throwing out the word “debt collector” if you have to).

Life is far too short to be chasing people up for invoices. It’s okay for your clients to forget every once and while. But if they do it enough, it’s fairly obvious they aren’t giving you the respect you and your business deserves.

And remember – having outstanding and increasing debt owed to you means a growing pie of “account receivables”.

The more this goes up, their quality goes down. By that we mean, chase up late invoices early on. Don’t wait six months, only to say “Hey, by the way, you haven’t paid your invoice that was due to me half a year ago!”

  1. Invest in excellent cash flow management software – keeping it simple

While robust cash flow management is important, there is absolutely no need to have dozens and dozens of Excel spreadsheets all over the place.

Accounting can be very simple (and – at least for us – it can be very fun)! And it all starts with some high-quality cash flow management software.

A simple, easy-to-use accounting programme will save you lots of migraines when running your numbers.

A good piece of software will help you create a cash flow statement, which you can use to see the money left in your account every month. It will also help you assess whether you’ll have the right amount of money in the future.

Here’s an example. You’re expecting a massive order in a couple of months. Will you have the capital and inventory to meet the demands? Using smart accounting software to reliably predict your numbers makes it that much easier to plan.

  1. Make it easy for clients to pay you

This is a no-brainer, but we far too often see clients getting this wrong.

First, you should always be clear right at the beginning about expectations of payment. You should then follow up on this by always sending out your invoice at a time they expect. This could be every week, every month or basically whenever the client requests.

Always offer easy options to pay. PayPal, Stripe, EFTPOS, credit cards: these are all very easy ways for clients to pay you. Cash under the table deals are a thing of the past – especially in the age of e-commerce.

And, of course, remember strategy #2.

Have a system in place if your clients are late when paying you. If you follow up on a payment that’s late, you’re more than likely to get paid (9 times out of 10, your client just forgot about the invoice). You can even stop this from happening by offering some enticing discounts for clients who pay early.

  1. Create your treasure trove (i.e. a cash reserve)

You need to have immediate access to a stack of cash. Without it, your business is unfortunately at high risk of failing.

Think about it. Maybe you need a stack of working capital in order to meet a big order. An expensive fire you have to put out. A sudden massive tax bill. Maybe somebody sued you and you’re now throwing money at them to make them go away.

The expense could be anything – but whatever it is, you’ll need a treasure trove up your sleeve in case the unexpected happens. Think of it as like your own little insurance account.

If you build up this reserve, you can protect yourself from the unpredictable economic cycles that plague the modern economy. You become financially secure and that provides you with the piece of mind you need when running a business.

Cash Is King

  1. Hire a professional accountant

Sometimes, though, everything is easier said than done. As businesses get caught up in their client work or meeting customer orders, it can become impossible to find the time and energy to keep up to date with accounts and manage cash flow.

Perhaps you’re struggling to grow that cash reserve. Maybe you continuously forget to chase up old invoices. Maybe you’ve tried downloading a cash flow management software like MYOB or Xero but can’t quite work it out.

In those circumstances, it really pays to hire a professional accountant who can take that burden off your shoulders. An accountant developing a robust cash flow management tailored specifically for your business – letting you be free to focus on the work you need to do to get paid in the first place.

Here at 2account, this is exactly what we can do for your company (no matter if you’re a sole trader or run a small business, an SME or a large corporation). Our team of expert accountants will take the time to understand your business objectives, and tailor a highly effective cash flow management strategy that will help you alleviate stress, get paid on time, make payments on time and grow your business.

Get in touch with us today to book a call, and we’ll help you boost your business confidence with a robust cash flow strategy.

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