{"id":656,"date":"2017-05-01T14:04:27","date_gmt":"2017-05-01T04:04:27","guid":{"rendered":"https:\/\/www.marshallfreeman.com.au\/blog\/?p=656"},"modified":"2017-08-15T14:34:55","modified_gmt":"2017-08-15T04:34:55","slug":"9-tips-for-making-cash-flow-work-for-you","status":"publish","type":"post","link":"https:\/\/www.marshallfreeman.com.au\/blog\/9-tips-for-making-cash-flow-work-for-you\/","title":{"rendered":"9 tips for making cash flow work for you"},"content":{"rendered":"

9 tips for making cash flow work for you<\/strong><\/h1>\n

It\u2019s vital for small businesses to effectively manage their cash flow.\u00a0 It can mean the difference between your business surviving or not.\u00a0 Here are our tips for managing cash flow like a pro.<\/p>\n

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  1. Understand your working capital needs<\/strong><\/li>\n<\/ol>\n

    Are you completely aware of exactly how much working capital your business needs to operate? The cash your business needs to operate depends on a number of factors, including the amount of inventory you hold, how long it takes between you paying your suppliers and receiving payment from your customers, whether your invoicing is up to date, how much your business is owed, and so on.\u00a0 It is necessary for you to have a realistic understanding of what you need to keep your business running.<\/p>\n

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    1. Build a buffer to fund working capital<\/strong><\/li>\n<\/ol>\n

      Once you have a picture of your actual working capital requirements, you\u2019ll need to ensure you have enough cash to fund it.\u00a0 This means creating a buffer or cash reserve to cushion your business from unexpected circumstances and costs.\u00a0 Experts often advise small businesses to have a buffer of at least three months\u2019 worth of outgoings in their business bank account, whether cash that is easily available or a revolving credit or overdraft facility.\u00a0 Note that retained profits are considered the most cost-efficient source of working capital, so you may need to consider cutting your expenses.<\/p>\n

      Building a cash reserve can be difficult for a small business, but it\u2019s imperative to help insulate you from the volatility of economic cycles and make you less dependent on the sometimes capricious decisions of banks and lenders. Not only that, but you will have the ability to take advantage of opportunities that arise, such as discounts on stock, or being able to fulfil an unusually large order.<\/p>\n

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      1. Plan for the future<\/strong><\/li>\n<\/ol>\n

        Make sure you prepare cash flow forecasts for the upcoming financial year.\u00a0 Predicting sales can be tricky, but if you determine what all your outgoings are first, you can usually then work out what the level of sales will be required to cover the outgoings, providing you with a target and making it easier to work out what your borrowing facilities with lenders should be.<\/p>\n

        As well as preparing annual forecasts, it\u2019s smart to plan month by month.\u00a0 A monthly spreadsheet template can help. This can allow you to discover potential issues well in advance of them becoming major headaches.<\/p>\n

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        1. Review your systems<\/strong><\/li>\n<\/ol>\n

          Small businesses sometimes neglect this step, but it\u2019s important to get an overview of all your business systems, including invoicing. Have a really good look at how you are set up: do you invoice at the end of the month or as you go? How quickly are receivables collected? Are you fully aware of what is owed to you or what your business owes its creditors?\u00a0 Don\u2019t forget to evaluate supplier costs and how you are being charged by them.<\/p>\n

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          1. Focus on your cash conversion cycle<\/strong><\/li>\n<\/ol>\n

            Your cash conversion cycle measures the time between a business disbursing cash and collecting it.\u00a0 Ideally, you want to speed this up, particularly if you run a business with inventory. It may be that you need to cut stock levels or set up longer payment terms with suppliers to ensure you have a shorter cash conversion cycle.\u00a0 It will also help to speed up the way you are paid by clients.<\/p>\n

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            1. Cut costs to improve revenue<\/strong><\/li>\n<\/ol>\n

              Anything you can do to improve your revenue by cutting costs will help you improve your cash flow. Take a proactive approach to increasing income by evaluating supplier costs, eliminating unproductive services or product lines, removing difficult or very slow-paying customers or non-contributing staff members.<\/p>\n

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              1. Stay on top of your accounting<\/strong><\/li>\n<\/ol>\n

                Keep a close eye on your accounting and reporting systems so you maintain a comprehensive overview of your business\u2019s financial situation. Make sure your books are up to date. Be aware of your accounts receivable turnover and watch how it trends. Watch you\u2019re ageing invoices and act fast to chase overdue accounts before your cash flow situation becomes a problem.\u00a0 Don\u2019t be afraid to call in help from a debt collection agency<\/a> early to avoid problems snowballing.<\/p>\n

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                1. Simplify and streamline your accounting and invoicing system<\/strong><\/li>\n<\/ol>\n

                  The more efficient your invoicing system, the better for your business. Take advantage of the benefits of online invoicing software which greatly simplifies the process and can dramatically speed up debtor payments.\u00a0 Good accounting software also makes forecasting cash flow and budgeting easy, so that you can keep an eye on your working capital needs.\u00a0 Tracking and reporting key business metrics is made easy with many good quality accounting software systems, giving you a better grip on managing your cash and avoiding running out of working capital.<\/p>\n

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                  1. Make payment easy for clients<\/strong><\/li>\n<\/ol>\n

                    Being owed money by clients is the quickest way to ruin your cash flow. It\u2019s absolutely necessary to ensure you are paid as quickly as possible. Collecting from customers should be as efficient as possible, ideally using online invoicing systems which speed up the process and make it very easy for customers to pay, giving them options for instant credit card, EFTPOS and PayPal payment. And avoid being too lenient\u2014if it is necessary, bring in your debt collection agency<\/a> early, and ensure your client pays for debt collection activity by outlining this in your terms of trade.<\/p>\n

                    Effectively managing cash flow is fundamental to small business success. By implementing these tips, you\u2019ll not only protect your revenue, but you\u2019ll also set yourself up for long term success.<\/p>\n","protected":false},"excerpt":{"rendered":"

                    We outline 9 essential tips to help businesses manage and improve their cash flow. By following these simple tips, your business will be in a better position to succeed. Learn More.<\/p>\n","protected":false},"author":1,"featured_media":658,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/www.marshallfreeman.com.au\/blog\/wp-json\/wp\/v2\/posts\/656"}],"collection":[{"href":"https:\/\/www.marshallfreeman.com.au\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.marshallfreeman.com.au\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.marshallfreeman.com.au\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.marshallfreeman.com.au\/blog\/wp-json\/wp\/v2\/comments?post=656"}],"version-history":[{"count":3,"href":"https:\/\/www.marshallfreeman.com.au\/blog\/wp-json\/wp\/v2\/posts\/656\/revisions"}],"predecessor-version":[{"id":660,"href":"https:\/\/www.marshallfreeman.com.au\/blog\/wp-json\/wp\/v2\/posts\/656\/revisions\/660"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.marshallfreeman.com.au\/blog\/wp-json\/wp\/v2\/media\/658"}],"wp:attachment":[{"href":"https:\/\/www.marshallfreeman.com.au\/blog\/wp-json\/wp\/v2\/media?parent=656"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.marshallfreeman.com.au\/blog\/wp-json\/wp\/v2\/categories?post=656"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.marshallfreeman.com.au\/blog\/wp-json\/wp\/v2\/tags?post=656"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}