Learning how to manage cash flow is one of the most vital skills any business owner can master. Try these tips to get the know-how you need to become a cash flow wizard.
Long before the pandemic, Australia’s small business owners were in the midst of a cash flow crisis. In 2019 the Scottish Pacific Growth Index report found one in five small businesses were facing cash flow problems. While in April 2020, three in four were using personal credit to keep afloat. With the impact of the coronavirus crisis yet to be measured, there is a real concern as to how small businesses will manage to maintain growth in an increasingly hostile environment.
Scottish Pacific CEO Peter Langham said having a cash flow buffer helps a business ride out tough times, and also allows the business to move quickly if they see an opportunity.
“With tough trading conditions continuing for the foreseeable future many businesses are expecting an increase in late-paying customers, and others are concerned that they will not be able to afford to update essential equipment.
“Business owners who get their funding secured against business assets (such as their sales invoices or equipment) rather than risking the family home don’t have to worry about whether they can take on extra work, because their cash flow improves if they have funding that grows in line with sales.”
Indeed cash flow and access to finance are vital. Funding your business to optimise cash flow has become more critical than ever. An SMB struggling with cash flow can only stretch working capital so far before something has to give.
“Australian small businesses are in the midst of a cash flow crisis, and the SME Growth Index indicates the situation is getting worse,” said Australian Small Business and Family Enterprise Ombudsman Kate Carnell.
“Small businesses are telling us time and time again that a lack of access to funding is their biggest barrier to growth. This has major implications for the sector as a whole as well as the economy more broadly. This highlights why it is so important for small businesses to be paid on time.”
So how can you maximise your cash flow? Start with these four tips:
Double down on unpaid invoices
Take a good look at your outstanding invoices. Every invoice past due is money that could be keeping your business afloat or boosting business growth. Examine your overdue invoices and see if there is something you are doing that is a pain point or barrier to getting paid. Remember the simpler you make it to pay your invoices the faster you are likely to get paid. Invoice clients immediately on completion of a job.
Opt for e-invoicing
Are you still using old school paper and snail mail for invoicing? Ditch the paper and opt for e-invoicing instead. It’s then simple to send an invoice straight from your phone or tablet to your customers as soon as you wrap a job. Plus add as many payment options as possible to your invoice. Thanks to the coronavirus crisis, most people have shunned cash for other forms of payment. By allowing people to pay by multiple payment methods such as credit cards, Paypal or Apple Pay or by including your PAYID as your preferred method of payment, you will increase your chances of getting paid fast.
Repeat customers are your bread and butter
There are reams of pages written on how to lure new customers to your business. However, focusing your attention on your existing customers is time well spent. Repeat business provides a huge opportunity to build a consistent source of income. Give your existing customers a reason to keep coming back.
Take a deep dive into your financials
If you are using a cloud accounting solution for your business, then you have the benefit of access to real-time data in the financial health of your business. Use it! Dive into your data to look for business trends by checking monthly sales and expenses. This will make it easier for you to forecast where your business will be in 12 months and plan accordingly. Understanding where and when your cash is going out can assist when it comes to stabilising your cash flow.
For more guidance or specific help on how to manage your cash flow or fund your business get in touch with ScotPac 1300 209 417
This article was first published on Small Business First. You can see the original content here.