Profit is fantasy, revenue is vanity, cash flow is king.
That's the reality of every small business. Forget profits and sales, cash flow is what determines the financial health of every business.
The lag between the time you have to pay suppliers and wages, and the time customers actually pay you is the greatest challenge for all business owners. Cash flow management should always, every day, without fail be your number one priority.
Yes, the P&L, balance sheet and business plan are essential big picture financial tools. But cash flow management is a survival tool. And these days there is no excuse not to be on top of it, with the range of digital tools and cloud based accounting software packages available.
Getting cash flow right removes so much stress from the business and builds better relations with your lenders, who will be more confident you are in control of your financial management.
Modern, non-bank lenders have become a trusted source of money lending to help navigate cash flow issues surrounding business growth, and assist customers with cash flow strategies.
There are some sure fire ways to help keep your cash flow issues at bay.
- Get paid quicker. Invoice immediately after completing the job or sale and try to ask for deposits up front whenever you can. Have strict payment terms and be vigilant in chasing late payers. Set up automatic reminder emails to be sent a few days out from an invoice due date.
- Never pay invoices early unless there is a good financial incentive. Take full advantage of creditor payment terms.
- Make a bank transfer the last day they are due retaining use of your cash.
- Categorise expenses into ‘must-pay’, ‘important-to-pay’ and ‘flexible-to-pay’, and stagger payments.
- Stop using BAS and PAYG collections to fund cash flow. Set aside these collections into a different account so you don't get caught out. This one takes a lot of discipline.
- Sell old stock and inventory at any price.
- Build a strong relationship with your financier and keep them across your cash flow requirements.
Moula offers exclusive loans
Become a Small Business First member to find out how to get a loan to grow your business with Moula and access exclusive offers.
Get approved for a small business loan up to $250,000 and enjoy a prepaid gift card valued at up to $500 as well as ongoing offers and promotions.
Moula lends to most types of businesses in every state in Australia, including franchises, retailers, wholesalers, professional services, beauty services, hospitality and much more.
Getting approved for a business loan is simple.
Joining Small Business First is free and includes other exclusive deals to help you save money.
Small Business First and Fairfax Media may earn a commission on deals through smallbusinessfirst.com.au.
Readers should shop around for the best deal to suit their needs. Pinstripe Media, David Koch's family business, is a founder of Small Business First.