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Do’s and Don’ts of cash flow management

Cash flow is the money coming in and going out of your business. Managing cash flow is the single most important thing a business can do – as without it, the business could cease to exist.

We’re talking expenses VS revenue, which of course determines profits. Balance is important – too many expenses and something is clearly wrong; but too much revenue means higher taxation and potential wasted opportunities for growth.

Without knowing this balance, how can you make informed business decisions about investments, staffing, capital, suppliers, and stock? How do you know when it’s time to investigate cash flow lending?

So without further ado, here are the Do’s and Don’ts of cash flow management:


Do – Know your cash flow position and create a cash flow statement

Managing cash flow is all about data and statistics. You need to know exactly what cash is going in and coming out, and when! Use the data to get a holistic understanding of your cash flow position as well as any seasonality in your business.

Set cash flow targets to hit in peak seasons that will keep you going in lower seasons, and of course, stick to your budget! This is where strategic cash flow management is so important. It’s also always a smart idea to keep some cash in reserve for any emergencies that pop up unexpectedly – so make sure you work that into your cash flow statement too!


Don’t – Allow short-term investments or whims to throw off your whole budget

It’s so easy to jump at an opportunity because you have the money to do so right now, but you need to think carefully about what that might cost you down the line. Does the business have enough cash flow to accommodate this long-term or will you struggle due to funds being tied up when you need them?

We’re all for thinking positively, but what happens if that investment doesn’t pay off the way you think it will? Contingency plans are vital for good cash flow management.


Do – Use a cloud accounting system to help you manage your cash flow

If you don’t have an in-house accountant, cloud accounting is a lifesaver! Especially for start-ups and small businesses, managing cash flow is easier when you can automate it! Plus they can give you a top-down view at your cash flow straight from the dashboard.

Cloud accounting software like Freshbooks, MYOB, Quickbooks and Xero (just to name a few!) exists to help small businesses keep their books under control and can help you keep a close eye on your cash flow by monitoring what’s going in and what’s coming out at a glance – which can make tax time a breeze (and who doesn’t want that!).

Depending on which software you choose, it should also have the capability to send invoices, chase late payments (and even add late fees!), track and categorise your expenses and more which can really help to streamline your internal processes.


Don’t – Forget to reconcile your expenses on a regular basis

Even though you can automate a lot of your cash flow management with cloud-based accounting software, you still need to make time to reconcile your expenses often so you can save yourself stress & time around BAS or EOFY.

Plus, even when it’s automated, you should still be keeping an eye on your expenses for budgeting reasons – this will help to see where you might be able to minimise cost and save some money. The best way to manage cash flow is to be as proactive as possible!


Do – Jump on any debtors ASAP to get the money you’re owed

The quickest way to get your cash flow back in check is to chase up anyone that hasn’t paid their invoices. If you’ve already completed the work or supplied the product, why shouldn’t you get paid ASAP?!

Or if you’ve invoiced for a deposit, make sure you follow up and show your excitement to get started on the project. If you face resistance, see if there is scope to work out a payment plan to help cash flow for both parties!

On that note, make it as easy and enticing for customers to pay you ASAP. Offering multiple payment options like payment plans, credit cards and AfterPay can go a long way to help you get paid; while offering small incentives for early payment can help give your cash flow a much needed boost!


Don’t – Extend too much credit to customers or clients that haven’t paid you.

It’s so easy to take pity on our customers or clients when they have cash flow management issues of their own. Extending your payment terms is one thing, but be careful of customers trying to take advantage (especially if you’ve already supplied the product or service).

Set strong boundaries (and payment terms), you can still be kind and get paid. Again, maybe this is an opportunity to work out a payment plan – something is always better than nothing when it comes to cash flow management.

Do – Ask your suppliers for extended payment terms

Sometimes it’s just not possible to get the cash from your clients when you need it. Another strategy to help your cash flow might be to ask your suppliers for extended payment terms. This little extra wiggle room could be all you need to get your cash flow under control again.

Communication is key after all, and fostering a great relationship with your suppliers can afford you some leniency when you need it most. Don’t forget, the more you buy from a particular supplier, the more bargaining power you have too. Use it wisely!


Don’t – Extend too much credit to customers or clients that haven’t paid you.

Sometimes you just need funds FAST. Alternative lenders like Capify exist to help small businesses with cash flow lending. They can help to get you out of a sitch with quick funding (we’re talking next-day!) and flexible repayment options so you can get your cash flow under control and get back on your feet sooner.


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