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Managing Cashflow

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It’s often been said that ‘cash is king’ or ‘cash flow can make or break a business’. Managing cash flow is critical to any business no matter how big or small. Small business survey’s normally highlight the fact that managing cashflow is one of the leading concerns for most small business operators.  You need to know where your cash is coming from, where it is going to and just as importantly what are your cash flow requirements going forward. Considering its significance to business we thought it would be timely to focus on cash flow management. Below are 5 simple tips for managing cash flow.

1.Debtor Management

You’ve done the job for a customer, sent them the invoice and then wait patiently until the 20th of the month following to finally get paid for the job. Your staff get paid the week the job is done (assuming your wage cycle is weekly) and your suppliers expect you to pay for the goods you purchased from them  on the 20th of the month following. If your customer doesn’t pay you, you will have a cashflow issue. One customer not paying may not be an issue but multiple customers not paying by the due date may mean you have a debtor management issue. Debtor management can be one of the most difficult and sensitive areas in effective cash management. It’s a job very few people enjoy which means most people put off chasing outstanding debts owing to you. That’s right, it’s a debt owing to you. While remaining unpaid you are effectively lending money to your customer, often interest free.

Make a plan and commitment to put a procedure in place to chase outstanding amounts. If terms of trade are payment by the 20th of the month following email or call the customer on the 21st of that month if the amount remains unpaid to check they have received the invoice or whether there is an issue with the invoice. You will be surprised how successful this practice will be and more importantly the resulting improvement in your cash flow.  Failure by the customer to pay by the set date (or negotiated date if payment terms are altered by mutual agreement) may mean you need to consider engaging a debt collection agency. Going down this path does not mean you are the bad person. The customer has purchased the goods or services, it is up to them to pay you by the due date and if they cannot pay by the due date they should contact you to negotiate alternative repayment terms and not expect you to chase them about the outstanding debt.

Cash Flow Forecasting

2.Cash Flow Forecasting

A number of small businesses run their business without an effective cash flow forecast in place. It is often said that the bank account is a quick barometer of how business is performing but that is a rather simplistic approach to monitoring things as it assumes debtor, creditor and stock levels are consistent. The bank account may be fine now but what will it look like in two month’s time? More importantly what will it look like in the quieter months, months when there may not be a lot of work but still overheads to go out? Have you planned for your next provisional tax and GST payments? Too often we hear stories about business owner withdrawing a large amount of cash that they thought was surplus at the time without looking ahead, only to find out they didn’t have enough funds to pay their next GST or provisional tax payment.

By thinking about and planning for your cash flow movements you are in a much better position to deal with unplanned or unfavourable movements. Once established it is imperative that ongoing monitoring of the forecast becomes second nature and that forecasts are updated when material changes to assumptions are known.

We recommend establishing a simple cashflow forecast to assist you keeping on top of your cashflow. We have templates available which we can provide you. A number of accounting software packages have built in cashflow forecasts.

3.Supplier Terms of Trade

This may sound like it is contradicting your new debtor management policy but negotiating favourable terms with your supplier can assist cashflow. It may not be possible to negotiate terms that larger organisations have the ability to negotiate but even changing payment terms from a seven day account to payment by the 20th of the month following can greatly improve cashflow. Suppliers may not be able to offer extended terms to your business but once questioned they may be able to offer a prompt payment discount if their account is settled by an earlier date. Lowering business costs improves cashflow.

4.Stock Management

If your business requires a reasonable investment in stock you need to manage your stock levels to ensure not too much cash is tied up in stock. While your hard earned cash is tied up in stock it’s not able to be used in other areas of your business, such as reducing overdraft / bank loan facilities and therefore finance costs or investing in staff development to grow your income.

5.Tax Savings     

It is good practice to regularly set aside funds for tax and GST. Many businesses have a separate interest bearing tax account to ensure they will always have funds set aside when tax falls due.

We Are Here To Help

Please contact the DCH team if you would like to discuss any of the above tips.




Our team have a diverse range of skills and experience which we utilise to ensure that you are always fully supported to make informed decisions and enable your business to head along a path of success.
We aim to develop close relationships so we understand each client's business and the direction they want to head. Our support is tailored to the specific requirements of the client to ensure goals are reached.

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