About half a million small businesses are launched in Australia each year. Of those,
just over half fail within four years. And one of the big challenges for small business
is cash flow.
Getting the money you’ve earned flowing in to meet your outgoing costs is critical
if you want your business to stay afloat.
So here are 5 strategies to help ensure you don’t land in a cash flow crisis that could
cost you your business dream
In order to get paid on time, it’s absolutely crucial to have a system in place that makes
it easy for your customers to pay you.
This can be as simple as making new customers aware of your payment terms. If you need to
be paid within 14 days to keep ticking along, let your customer know from the outset.
Also check that your invoicing system makes payment terms clear and lets your customer
know how to pay you. For example, make sure you include bank account details or other
payment options.
Tools likeInvoice2Go for example integrate with payment platforms that allow customers
to pay with credit cards or via services like Paypal.
Once an invoice is sent, make sure you can easily check when it’s overdue and send
reminders when a payment isn’t received.
Most businesses go through highs and lows. Some months can be particularly lucrative
while others are more challenging.
Check back through your sales and expense history and look for patterns. For example,
you may find that there are specific times of the year when cash flow becomes tighter.
That might be related to the weather, ongoing overheads, the end of financial year or some other factor.
Once you understand what times of the year are your most lucrative and expensive, you
can plan to set aside money so you’re not caught short during the tighter months.
Forecasting involves both planning and reviewing. So set time every month in your calendar to
revise your forecasts for income and expenses so that you know what’s coming.
There are 6 key indicators that a business may need funding:
The growing pains that come with expansion
If you’re turning away new business
When current funding reaches its limit
If your business isn’t able to meet commitments - from putting aside funds for BAS to delivering
promised stock levels
Slow paying debtors and the flow-on effect that creates
And business owners using personal funds
Financing can take many different forms.
There are short-term options such as overdrafts and credit cards, but high interest rates
and fees can make monthly repayments significant.
Small businesses have traditionally found it challenging to secure funding through established
lenders such as banks.
That’s changing with the rise of alternative lenders like Capify that provide quick access
to funds so the business can capitalise on opportunities to grow.
As always, try to consolidate any multiple debts or existing loans.
Weighing up the best option for your business will depend on your specific situation. That
may require getting advice from an expert into what will work best for you.
It can be tempting to stock up on items you need to run your business when they’re on
sale. The trouble is, when you invest in things like equipment, tech or other inventory, that
value is locked into something you may not be able to use for some time. So, while you
may be well-equipped, you don’t have liquid cash.
Look, if there’s a special deal available, perhaps buy an extra month’s supply. But
don’t get carried away and purchase a year’s worth of items.
Unexpected expenses can cripple a small business.
Western Australia's Small Business Development Corporation recommends adding 20% fat to your
expense forecast…
….and setting those funds aside, just in case you’re hit with something left field
such as the need to replace a piece of important equipment, the sudden loss of a key customer
or some other unforeseen situation.
You can compare business savings accounts on Finder.
Your vision may be the heart of your business but cash flow is the life blood.
Keep reviewing and revising - adjust your expenses, plan ahead if you need some short
term financing, and reconsider how (or even how much) you invoice customers and track
payments.
We’ve also made a new video explaining how your business can take advantage of the Australian
government's $30,000 instant asset tax write-off.
Click the link below to watch that and visit Finder for more guides to start or grow your business.