We have all heard the saying that cash is king. In business this couldn’t be more true. Walk through many major shopping centres and you will see a myriad of ‘for lease’ signs or closing down sales, with nearly 40 per cent of business failure caused by poor cash flow, according to the Australian Bureau of Statistics.
Given that 97 per cent of all businesses in Australia are classified as small businesses, closing down due to cash flow is alarming but often a position many business owners get themselves into without realising it. Business owners spend the first few days, months and sometimes years perfecting their product or service. Then you have to find your ideal client and really focus on them to build the business pushing cash flow management to the bottom of your to do list.
1. Manage outstanding accounts and debtors
The easiest way to improve cash flow is to actually get paid for the work that you have already completed. Have a procedure in place to chase up/follow up outstanding accounts/debtors on a regular basis. These can be as simple as a reminder alarm in your phone for a certain time of the week, leveraging from automatic invoice reminders if you are a Xero customer or implementing a plug-in into your accounting software such as Debtor Daddy.
2. Progress payments and deposits
If you have a large project in the pipeline or a customer that is a notoriously bad payer, and you are not in the position to refuse work with this customer, ask for a deposit or request progress payments. Not only will this give the business an initial cash injection, it will also minimise risk and financial stress at the end of the job.
Regularly monitor costs and closely look at all expenses including: subscriptions, telephone, electricity etc to see if you can decrease costs. A couple of dollars a week doesn’t seem like much in one transaction, but after a few months or years this can really add up to an unnecessary expense.
If looking at your financial reports is not something that you enjoy or understand, outsource this to an accountant or bookkeeper, they also have an unemotional attachment to your business and will often give you the cold hard facts.
Assets are a large cost for starting and running a business but sometimes they turn into a liability by not bringing in enough or any revenue. Selling any idle assets such as plant and equipment, motor vehicle or business assets you are not utilising in the business can help with cash and also allow you to focus on new ways to create revenue. Do you only use a piece of machinery a couple of times a year and therefore it is cheaper to rent.
5. Increase productivity of employees
Look at ways you may be able to increase the productivity of employees, including:
- Improving how jobs are performed; and
- Regularly monitoring staff performance.
Creating systems for each job role creates key performance indicators for easy management of staff. If you are still a solo-preneur, still create these staff manuals, this way you are prepared for when your business needs to hire the next member of staff or if you decide to sell the business.
Achieving positive cash flow will not only improve the internal running’s of the business but can also help you become more competitive in your industry and allow you to offer better prices or discounts to your customers.