Cash Flow Tips for the new financial year!

Good cashflow is the lifeblood of any business.  It’s the amount of cash being transferred into and out of a business. Good cashflow is the lifeblood of a business. However even large enterprises are often guilty of missing payment deadlines.

The stats

Recently Xero asked 500 Australian companies about late payments*. Their answers exposed just how big an issue cashflow is in industry practices and what’s needed to grow small business and the economy.  Here’s what they found.

Nearly 2 in 3 are waiting to be paid

Over 62 percent of small businesses have encountered late or unpaid invoices in the past year. This can have a knock-on effect, with 38 percent saying late payments delayed their own payments to suppliers.

It also affects the larger economy, where small businesses employ nearly half of all Australian workers. Fifteen percent of businesses said late payments meant delaying wages or superannuation for staff.

A tilted playing field

71 percent of businesses said their suppliers’ payment terms were often longer than their own, or they weren’t adhered to, leading to further major problems for business.

Hanging on the brink

Almost 25 percent of small businesses say they wouldn’t have the operating cash flow to survive a month if all the invoices currently owed to them were left unpaid.

Some 62 percent of businesses would not survive more than three months if all invoices went unpaid. Almost 6 percent of businesses say they would last less than a week.

At least half say being paid on time would reduce stress, avoid unnecessary debt and drive business growth.

Learn more here –>

So, how do you work towards positive cashflow?

If operating activities do not generate enough cash to stay liquid even profitable companies can fail. This can happen if a company spends too much on capital expenditure or if profits are tied up in an inventory or accounts receivable. It is important to remember that the problem of cash flow issues is not their own but everybody’s. All businesses need buoyant receivables, all the way down to the supply chain.

In the business world, cash is king. That’s why it’s important for all businesses to develop the right strategies to maintain a healthy cash flow. You may anticipate large profits in the next 6 – 12 months but if you don’t have enough cash coming in to cover your expenses, your business risks going into liquidation. The following tips can help:

  1. Speed up receipt of cash – Send out invoices immediately after supplying goods or service and change your terms of payment (For example, payment due in 30 days instead of 60 days)
  2. Identify product or service offerings where clients can just be billed ongoing.  This reduces the amount of income that comes from having to rely on the acquisition of new clients.  
  3. Put your cash to work – A high-interest savings account for business allows you to earn a competitive rate of interest on your cash. Earn interest every day on each dollar saved, and can withdraw the money whenever you need to.
  4. Work with an accountant – An accountant can serve as an investment rather than an expense. An accountant can review cash-flow projections and results, provide insights into areas that you may have overlooked, and help you anticipate and plan for cash-flow problems.
  5. Monitor the results – on a monthly basis, compare your cash flow with your budget. This can help to work out issues in the system and figure out the reason for the shortfall.
  6. Reduce overheads – it’s smart to review your overheads every few months to make sure you aren’t spending unnecessary income on stuff that really isn’t required right now.
  7. Check your subscriptions – over time we sign up for different subscriptions that serve us at the time, but we may find after a while that we aren’t needing them anymore!  Do a review of your paypal and credit card statements regularly.

If you need to chat about how you can reduce your outgoings and increase incomings, why not schedule in a 15 minute chat with me!  We can work on increasing and stabilising cashflow.

Sally Hams

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