Improving business cash flow

There’s nothing worse than your business being restricted by a lack of business cash flow. You need funds to take advantage of openings in the market - to buy that new warehouse or showroom, to expand interstate, to employ that talented manager.

“You need to carefully manage the cash flow of your business so you can be certain of having sufficient funds to operate,” says Stephane Majman from Masons Accountants and Financial Advisors.

A balancing act for your business

To operate a business effectively, you need your profits to outweigh your costs. That means reducing overheads and charging prices or fees proportional to the cost of running your business. It also means choosing good clients and implementing mechanisms to ensure they pay you reliably and consistently for the goods or services you provide.

“There’s not much use having a long list of clients if they don’t pay you, and chasing up bad debtors costs money,” says Stephane.

Debtors management

The best way to manage the money owed to you is to operate some sort of debtors ledger. This records the work you do, the goods you provide and the money you are owed from each transaction. A debtors ledger can also help you remember to pursue clients who are taking too long to pay.

An extension of any well-run debtors management system is an analysis of your own business operations. This means assessing your own costs to ensure you are charging sufficient fees or prices to cover them. Costs that might come into play in any internal operational assessment include:

• staffing
• equipment
• rent
• stock

Asset valuation

You should also assess the value of your assets and whether their depreciation will adversely affect your bottom line. Sometimes it’s better to pay less up front in a hire-purchase arrangement or simply lease your equipment to ensure day-to-day cash flow. You don’t want your hard-won cash to be eaten up by large purchases, leaving you with no flexibility to operate.

Benefits of a good business cash flow

Having a well-managed flow of money through your business will help you:

• predict incomings and outgoings
• plan your business strategy
• buy products and pay your own suppliers
• have a good, reliable reputation
• have flexibility to expand into new markets.

Business cash flow equals growth

If your business can achieve regular, reliable and predictable cash flow then the sky is the limit. Without it, you will need to turn to other avenues to raise funds, whether they be loans, extra partners or investors. If those often-risky avenues fail, then your business will not survive. It may not happen overnight, but it will eventually fail.

So why not talk to a financial advisor today to assess how you can improve business cash flow and help ensure your long-term success.