Many areas of your business can have an effect on how much cash you have available. By controlling your expenses and increasing your profits, you can boost the money you have available in your business. In this article, we’ll focus on how businesses can maximise their cash flow.
Cash flow
Cash flow is simply the money that goes into and out of your business. It’s always ideal to have more money coming in than going out, but there are some months where this can be difficult. This is especially true where your sales fluctuate from month to month, because your outgoing costs will often be the same.
Obligations when managing your business’s money
Different business structures have different responsibilities when it comes to managing money. Sole trader structures are solely responsible for their businesses finances, meaning that they are also personally responsible for any debts they accrue. By contrast, companies are considered a separate legal entity. Company shareholders and directors are only responsible for a company’s debts if a director’s guarantee has been signed, or if they have breached their duties under the Corporations Act 2001 (Cth). In light of COVID-19, certain businesses are more exposed to risk than others such as those in the retail or hospitality sector. This also includes businesses which rely on supply chains and import or export products.
Government responses
Cash flow is a measure of the total amount of money going in and out of your business. However, current circumstances mean that many businesses will see more money going out than coming in. In response, the government is giving up to $10,000 to eligible small and medium sized businesses. These payments will help cover operating costs, rent, electricity, other bills and retaining staff.
Tips for boosting your business’s cash flow
1. Monitor your stock levels
Having excess stock can result in losses if it doesn’t get purchased or if you have to sell it for a lesser price. By monitoring your stock, you’ll know how much to order to keep up with demand and not spend money on anything your business doesn’t need. You can do this by calculating your stock turnover and performing an annual stocktake.
2. Manage outstanding accounts
Your customers won’t always pay on time, but it’s useful to have a system in place where you can recover any unpaid invoices. Further, if you give your customers a window of time within which to pay, you’ll be making it easier for customers to purchase your products. Payment periods are usually 14 or 21 days. If an invoice is unpaid after the due date, you should have a process where you send a reminder and then contact them directly if the invoice is still unpaid.
3. Review your payment methods
The way that you accept payments can have a big impact on your sales. The easier it is for your customers to pay, the more likely it is that they will purchase your products. Review what systems you have set up and see what you can do to make payments even more seamless. If you accept credit card payment over the phone, you might want to expand it to online credit card acceptance and even offer buy now, pay later options such as Afterpay.
4. Reduce your overheads
The day to day costs of running a business can quickly escalate. These are costs which should be reviewed regularly, and minimised when there is a downturn in your business. It is worth speaking to an accountant to see areas of your business where you can cut costs. Some simple ways to cut costs include going paperless, outsourcing parts of your business and reviewing your insurance policies.
Conclusion
Although it’s normal for your business’s cash flow to fluctuate from month to month, there are measures you can take to maximise it. By reducing unnecessary costs, you’ll have more money to keep within your business. For further advice, it may be worth speaking to a business lawyer.
