The number one things that kills most businesses is poor cash flow. Lack of money basically means that your business will struggle to function and if this continues, may even mean you have to close the doors. Luckily there are ways to improve cash flow issues. Read on to find out about 5 ways you can improve your cash flow.
It’s important to know where your business stands financially if not everyday, at least on a monthly basis. The only way you can do this is if you stay organised. Firstly you need to be using a record keeping system that works for you and secondly, you should be using good accounting software. Good bookkeeping will tell you, amongst other things, who you need to pay and who owes you money. If you don’t know these things, your cash flow will go flying out the window! You will also gain great insight into how things are travelling from viewing the profit and loss and balance sheet reports. If you aren’t feeling confident about doing your own bookkeeping, then engage the services of a good bookkeeper to do it for you. This will be the best investment you can make for your business.
Separate Bank Accounts
It’s a good idea to open a second bank account where you can save your GST, PAYG withholding and superannuation contributions (if you have employees). If you do this, you can always be sure that you will have enough funds available to pay your liabilities each month or quarter. You can call it the “Liability” account. Each week, work out how much GST you have charged on your sales invoices and transfer this amount to the liability account. Do the same when you pay your wages – work out how much PAYG tax and super has accrued and transfer that amount. If you are using a good accounting software, you should be able to raise reports that tell you exactly how much you need to transfer without having to do too many mathematical gymnastics. It’s a good idea to also transfer funds for future income tax payments.
Review the landscape
At least monthly, you should be reviewing your in-goings and out-goings. Check where the money is going. Ask yourself these questions:
- Do I really need it?
- Can the supplier give me a better price?
- Is there an alternative supplier who can provide a better service and perhaps, cheaper?
Check who owes you money. If you haven’t done so already, put a debt collecting system into place and start recouping what belongs to you and your business. Contact these customers and make every effort to ensure that they pay you. If the debt is very old, consider writing it off as a bad debt – at least you will recoup some dollars by way of a tax deduction.
Review your invoices
If you want your customers to pay you on time, you have to make it easy for them. Make sure you have made your payment terms clear to new customers and ensure that this information is clearly displayed on your invoice. Always stick to your payment terms and be prepared to instigate the consequences for all slow and non-payers (which will be clearly explained in your terms and conditions document). Clearly display “how to pay” and offer multiple payment methods such as EFT, Bpay, PayPal, over the phone etc. Another good idea being bandied around these days is offering a discount for early payment – positive reinforcement is a powerful thing!
Take a deposit or payments in advance
Ask for an up front deposit for large and/or on-going jobs. You could settle on 33% to 50% depending on the total costs of the work. This provides you with funds immediately and can help avoid payment issues later on especially if the total sum is huge! Another great idea is to move to fixed-price packages which are sold one month in advance to your client with the condition that if monies aren’t received then the work is put on hold. This is great because it means that you won’t be out of pocket ever. We sell packages here at e-BAS Accounts and we find that they work very well.
These are just a few ideas to assist you and your business with cash flow problems (or potentially avoid them). There are lots of other cash flow tips floating around the web right now which may also be of some help so jump into Google and take a look! If you have some tips or ideas that have worked for you then please share them here with us in your comments below.