February 9, 2022

How to boost your business’ cash flow in 3 easy steps

It’s never too early to start planning for your business’s cash flow. In fact, the earlier you start, the better off you’ll be. That’s because cash flow is one of the most important aspects of any business. Without it, your business will quickly run into trouble.

Cash flow is the lifeblood of any business, providing stability so that companies can pay their employees and avoid loan defaults. For small businesses in particular cash flow issues can put them in danger of failing or suffering financially.

If cash flow issues arise, you need to take measures to fix the situation before your business runs into trouble.

Follow these 3 simple tips to boost your cash flow and secure your business’ future:

  1. Perform a business health check
  2. Use a business budget
  3. Get on top of your accounts receivable

Perform a business health check

Identifying cash flow problems is the first step to coming up with solutions. Financial statements provide a blueprint of your business’ finances. Utilise them to identify if there are any issues with cash flow. This will allow you to plan accordingly, before it becomes too late!

Looking at the following reports can help you determine whether your cash flow is in good working order.

  • A balance sheet provides insight into a business’ value on a particular day. Your business’ worth is calculated by subtracting your liabilities from your assets.
  • Profit loss statements show whether or not your income is sufficient to cover your expenses. If your profit is falling behind your expenses and cash flow is slowing down it’s time to take action.
  • Cash flow reports highlight where cash is going, in and out of your business over a set period of time and can identify peak and off-peak periods.

Use a business budget

After performing a business health check to analyse your cash flow situation, it’s time to create a business budget.

Creating a yearly budget is not only necessary for future financing, but it will also assist you in determining which months are the best to save. This will help you to cover cash flow issues that might come up during quieter periods.

Identify your quieter times of the year and look for additional sources of income during those periods when cash is tight. Is there a product or service that could be introduced that could tide you over until cash flow picks up again?

You may want to think about flexible scheduling to help improve cash flow in quiet periods. Employing casuals and using a flexible roster could be beneficial to your business by helping cut back on hours.

Work with your team to come up with solutions and develop a plan of action to cover months with low cash.

Get on top of your accounts receivable

Late payments put your cash flow at risk and can put you in a financial bind.

Avoid being out of pocket by following these recommendations:

  • Collect debts on time – allowing late payments means that you’re without those funds for longer.
  • Reward customer loyalty – offer an early bird discount to encourage early payments.
  • Set credit limits and payment terms – ensure that those who owe you are following the rules.
  • For all new clients, make credit applications and perform credit checks.
  • Penalise late payments with interest – set a specified interest rate that you consider fair.
  • Cut back on inventory – unsold stock can be a waste of money, and if you have too much, you may not need to stock up when cash flow is down.
  • Request upfront payment or a non-refundable deposit – especially when dealing with large purchases.

In conclusion

Cash flow is a vital component of any business. It’s important to check your cash flow as soon as possible and identify if there are any issues in order to take measures before it becomes too late.

Perform a business health check to see if your cash flow is positive. Use a business budget to plan ahead and mitigate cash flow risks. Finally, get on top of your accounts receivable by following our recommendations.

If you need help with invoicing, chasing payments, or a general checkup of your business’ cash flow situation, we can help you. Find out what we can do for you by contacting us today.

Filed Under: Accounting, Business Advisory, Growth

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