Are cashflow issues keeping you awake at night?

Cashflow is still a major issue for a lot of Australian businesses. Did you know that timeframes are being extended on paying invoices to an average of 53 days? This has a huge effect on business cashflow in being able to meet bill obligations, paying employees and keeping the business running. Cashflow is therefore the issue that influences business operations the most, and many businesses simply forget to manage their cashflow, and just look at the profit of the business. To properly manage your business cashflow, you need to analyse the components that affect the timing of the cash inflows and outflows.

Did you know that if your business implemented some of the following processes, it could greatly improve your cash flow? For example, if you were to increase the collection rate by 10 days (to 43 days), it could add up to an extra $30,000 of working capital to your business (based on annual turnover of $1 million).

Here are some tips to help you to take more control of your cashflow:

Customers

• Have Terms & Conditions in place and ensure approved customers know your trading terms
• Invoice promptly, and send out customer statements regularly (usually end of month)
• Manage your debtors, and follow up promptly if they exceed your payment terms
• Offer additional payment options to suit your business – Bpay, Paypal, Credit card etc.

Suppliers/Inventory

• Know your supplier terms and negotiate discounts for early payment, or longer trading terms
• Modify the quantity and/or timing of your purchases to coincide with higher cashflow periods, or to extend payment terms (i.e. purchase on 1st month rather than EOM)
• Monitor inventory, and keep only adequate levels for your immediate needs
• Make arrangements to cover periods of inadequate cashflow by scheduling major expenditure such as product launches, staff recruitment or major projects to coincide with strong cashflow periods

Sales + Review expenses/bills

• Check supplier bills to ensure accuracy, and take advantage of creditor payment terms
• Manage and review expenses to see what can be reduced or to get a better deal
• Increase sales and also consider which items are making a profit (this in turn affects cashflow)
• Review all of your prices. A small increase in price has an immediate effect on your bottom line.

Other – Finance, business growth

• Review your finances and loans, consolidate debt and/or see if you can get a better deal
• Consider leasing your main assets to spread the cost over a longer period of time
• Sell unwanted assets that aren’t required to run the business (and reduce storage costs)
• Prevent theft and also put into place internal control procedures – i.e. payment of bills, petty cash

By monitoring your cashflow regularly, you will be able to ascertain where any problem areas are, and help to anticipate changes in your business liquidity position. By keeping more informed, and taking action when required will also help to ensure the continued success of your business.

Cashflow projections and cashflow management are areas in which Jaguar specialises, so please feel free to contact us on 08 8212 0217 if you require any assistance or would like a Free Business Health Check.