19 Things Successful Businesses Do To Manage Their Cash Flow

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Admit it.

You don’t always pay your suppliers on time.

Your cash flow is less predictable than the weather, and you worry that one day, you’ll lose a valuable business opportunity due to a lack of available funds. You know that even profitable businesses can go bust if they don’t manage their cash flow.

As a business owner you should have a better handle on this, right?

But maybe you’re being too hard on yourself. Maybe you just need a few more tricks and tools in your accounting armoury.

Before you resign yourself to the mercy of painful month-end accounting stress, try these 19 ways to get back in control.

But first, let’s take a quick look at why cash flow is so important.

Briefly, cash flow can be described as the money coming in from revenue and the money going out for expenses. Badly managed cash flow can spell disaster for a business, even if it’s profitable. Without sufficient funds to pay your suppliers and lenders, banks may foreclose and suppliers could cut supplies.

How To Gain Control Of Your Business Cash Flow

  • Prepare a business plan. Outline your goals and how you will achieve them. Document projected income and expenses to help determine what this means for your cash flow.
  • Keep your eye on the bottom line. Consider the cost-benefit of every expense and protect your profit margin.
  • Complete a monthly sales forecast. Base it on real numbers and evidence. Review other businesses in your industry to track trends and predict future sales.
  • Create a monthly cash flow budget. Track cash flow at a day-to-day level by including supplier payment dates. Include total monthly inflow, outflow, net cash flow, opening and closing balances.
  • Monitor actual inflows against outflows. Record and compare actual figures against your forecast to ensure you are tracking against your goals.
  • Collect unpaid invoices. Be proactive and chase every unpaid invoice. Motivate customers by offering discounts for early payments.
  • Safeguard your business with a cash buffer. Protect your business from unpredictable bumps in the road by squirrelling away a ‘just in case’ cash buffer. It’s recommended to set aside an amount equal to two months operating expenses.
  • Be proactive and secure finance options before you need them. Remain on the front foot as you negotiate arrangements before the need arises and you lose the power of choice.
  • Invest surplus cash. Maximise income by investing surplus cash for the short term.
  • Have a clear cash management policy. Outline what is permitted and what is not. Communicate this with your staff and customers.
  • Understand your customers’ payment patterns. By reviewing this information, you’ll be better equipped to predict payments and expected monthly income.
  • Automate your accounting for quick invoicing. Preparing and tracking invoices easily will speed up the payment process and help to maintain a healthy cash flow.
  • Send early reminders. Don’t wait, send reminders the moment an invoice becomes overdue.
  • Build relationships with suppliers. You never know when you may need to ask for understanding on a late payment due to unforeseen circumstances. A strong relationship will go a long way to ease this process.
  • Monitor stock levels. Holding too much stock ties up cash.
  • Reduce overheads. Minimise wastage, reduce staff overtime and implement environmentally friendly measures to reduce power and water costs.
  • Take full advantage of creditor terms. Retain cash in your accounts as long as possible. If payment terms are 30 days, don’t pay in 15.
  • Consider vendor’s discounts for early payments against your monthly cash flow forecast. Early payment may cost more than it saves you if it creates cash flow problems.
  • Review lowest prices versus flexible payment terms when selecting a supplier. Flexible payment terms may be more beneficial to a healthy business cash flow.

Managing cash flow well can be tough, particularly when customers are prone to late payments.

But with the right strategies and a little planning you can regain control.

Just imagine being able to take on new clients without the fear you have insufficient cash flow to fund the job.

Or knowing you might not be able to pay your staff on time.

So start now and try some of the suggestions above.

You’ll soon find you are free from the stress of crunching numbers to squeeze more cash from your accounts. You’ll be able to focus your attention on growing and managing your business for a stronger, more profitable future.

So, which one will you try first?

If you have any questions about the COVID-19 Disaster Payment, feel free contact our office on 02 9223 4378.

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