When it comes to running a small business, cash flow management is king.
Effective cash flow management is the difference between running a successful business and, unfortunately, going out of business.
To help out, we’ve put together this list of eight easy-to-implement cash flow management tips for small businesses.
Eight easy-to-implement cash flow management tips for small businesses.
1. Stay on top of your books
Even if accounting isn’t your idea of a good time, any smart business owner will tell you the importance of understanding your accounts when it comes to ensuring consistent cash flow.
If you’d prefer not to get bogged down in pen and paper, you can always opt for cloud-based accounting software to digitally manage your bookkeeping and automate some of the more onerous data entry.
2. Implement effective credit control
Late payment of invoices is always a problem for small businesses and it can put a real dent in your cash flow.
The good news is that, while you are always going to need to implement some form of collections, there are steps you can take to keep time spent on those collections to a minimum.
- Do your due diligence and run a business credit check on potential customers to spot any payment-based red flags before onboarding them.
- Having clear and straightforward payment terms that set out when you expect to be paid and include all the payment details your customers need to make a timely payment.
- Include consequences for late payment as part of your payment terms, such as interest on overdue invoices or penalty charges to cover the cost of your collections efforts.
- Escalate persistently unpaid accounts to professional collections services rather than just write them off. You’ve already earned the money, you’re entitled to take steps to ensure you receive it.
As with accounting, there is cloud-based credit control software that can help you with your collections efforts and automates a lot of the more time-consuming parts of the process.
3. Invest in Hardware as a Service (HaaS)
Rather than buying new hardware, you can usually lease it for cheaper through a Hardware as a Service (HaaS).
The benefit of using HaaS is that the cost is spread out over the lifetime of the contract, rather than an upfront payment.
4. Cut where you can…
In more volatile economic climates, you might find you need to cut back on that bloat by streamlining your business.
This is where staying on top of your accounts is vital. With the proper reporting, you can identify product lines or services that aren’t performing and either pivot or cut them to help minimise your overheads.
For instance, switching to SmartCharge zero cost EFTPOS means you keep the full amount of every sale and, if you have a monthly turnover of over $10K in credit card transactions on each terminal, you don’t have to pay for the EFTPOS rental, further cutting your expenses.
5. …outsource where you can’t
If you need specialist staff but don’t want to jeopardize your cash flow by going through the hiring process and onboarding a new staff member, you can always outsource the position.
There are plenty of Australian companies that specialise in acting as specific departments, such as accounting or collections, for companies that don’t want the expense of hiring new staff.
6. Have a line of credit handy
Having lines of credit available that you’re not using, either with your suppliers or with a financial institution, is an excellent way to shoring up your cash flow and staying liquid during challenging economic times.
7. Don’t be afraid to ask for a deposit
Asking for a deposit can allow you to get the costs of the work, be that in staffing, goods, services, or materials, covered upfront, with the profit for the work being paid on completion.
Having the option to take a deposit means you’re not out of pocket for the basic expenses of the work while you’re actually doing it.
8. Examine your own lines of credit
Offering lines of credit to your customers is an excellent way to drum up new business and potentially encourage customers to place larger orders because they don’t have to pay for it all upfront.
However, if you have customers who persistently pay their invoices late, you could consider cutting the amount of credit you’re offering them or increasing the amount of interest you’re charging.
Improve your cash flow management
In times of economic uncertainty, maintaining consistent cash flow is the best way to keep your business stable.
By putting in place our easy-to-use cash flow management tips, you can ensure your business stays liquid, even under the most challenging economic conditions.