Cash flow worries keeping you awake at night? 3 steps you can take now

By Geoff Scofield, Westlawn Finance MD & CEO
26 September 2016

Are cash flow worries keeping you awake at night? If so, you’re not alone. Three recent surveys of small business owners have all found cash flow issues to be at the top of the list of headaches for small business owners. If cash flow is a constant concern in your business, the good news is there are some positive steps you can take now to reduce the stress.

On 19 September, the latest Scottish Pacific SME Growth Index was released revealing that cash flow concerns keep 72.5% of business owners awake at night. In fact, cash flow was at the top of the list of concerns. Not having enough time to get things done (55.2%) was next on the list, followed by customer or supplier issues at 39%.

The Commonwealth Bank Small Business Study, also released this month, found that “cash flow remains a stress factor, with half of respondents opting to not pay themselves a wage one or more times in the past year as a result of cash flow issues”.

The CBA survey revealed 32% of small business owners dipped into their own accounts while 44% use credit cards “as their primary tool to manage cash flow, working capital and business investment”.

Accounting group MYOB’s latest monthly online survey, SME Snapshot, confirms the findings of the latest Scottish Pacific SME Growth Index and Commonwealth Bank Small Business Study. The September snapshot revealed that 54% of businesses have waited over 6 months to be paid by a customer and more than 7 in 10 have written off money owed to them.

So, if cash flow is a concern in your business, you’re not alone. Here are 3 positive steps you can take now to get the cash flowing again.

1. Monitor cash flow

Firstly, you need to understand the ongoing cash flow situation of your business. And the only way to do that is to record and regularly monitor your cash flow.

Prepare monthly, quarterly and annual cash flow projections and closely monitor your operating expenses, overheads, stock levels, debt collections and profit.

To help you prepare your cash flow projections, download the cash flow template from business.gov.au

For each month, enter your opening balance and incoming cash from sales, asset sales, debtor receipts and other income. Cash outgoings will include, for example, stock purchases, professional fees, marketing, bank and credit card fees, interest paid, utilities, lease, loan and rent payments, insurance, wages and super. The template above includes a long list of outgoings to assist you.

Remember, record amounts in the month they are expected to be spent or received. For example, utilities are usually paid quarterly, so record these in the month they fall due.

2. Manage debtors and creditors

Know your customers. Before providing credit terms to a customer, check you have all of their information. Consider running a credit check if sales will be substantial.

Set and agree your credit terms clearly upfront. Customers should know exactly when payment is due. Invoices should clearly show your terms and banking details.

Receiving payments faster will boost your cash flow, so get into the habit of sending invoices immediately after the delivery of your goods or services. Consider offering a discount for early payment. Encourage customers to pay on the spot by having a portable EFTPOS on hand. Set up a PayPal account on your website.

Where a customers defaults, chase the debt early. If you’re struggling to receive a payment, consider the services of a debt collection agency.

And practice what you preach. Make payments to suppliers on time whenever possible. That way, if you do run into trouble, your creditors will be more likely to extend credit terms or even allow you to spread payments over time.

3. Reduce overheads

When was the last time you sat down with your red pen and cut out unnecessary costs?

Chances are, with 55% of your fellow small business owners saying they don’t have enough time to get things done, it was probably some time ago.

For starters:

  • Review your suppliers, phase out unprofitable or low margin products or services.
  • Regularly review inventory to hold only as much stock as needed to efficiently run your business. Excess stock can tie up cash and increase storage and insurance costs.
  • Consider reducing staff overtime and controlling other overheads.

For more tips on managing your cash flow, read Get your cash flow in shape now for the summer holidays.

How Westlawn can help

At Westlawn, we can assist your business to better manage those cash flow fluctuations with flexible working capital finance options such as:

  • Business line of credit – provides flexibility to draw down funds at any time to suit your cash flow requirements through a non-structured loan with no set repayments.
  • Term loans – available for any specific business purpose such as purchasing plant and equipment, business expansion, or for managing cash flow. Flexible loan terms and interest rate options are available.
  • Leasing and rentals – allows you to get the new business equipment you need without any upfront cash outlay. There may also be some tax advantages too.

To find out more about our solutions for better managing cash flow, contact us today on 1300 WESTLAWN (1300 937 852).

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