When you assess your business’ success, do you often jump straight to the sales and revenue figures as your key metric? If you answered yes, don’t worry, you’re not alone, many business owners have been guilty of this mistake. Unfortunately, the sales and revenue figures do not give a true reflection of your business success.
An important metric that is often overlooked is cash flow. This takes into consideration the amount of money that’s flowing in and out of your business. Cash coming in will most likely be your sales and cash going out can be the following:
- Rent or mortgage payments
- Monthly business loan repayments
- Payments to your suppliers and other accounts payable
It is important to note that if your clients have accounts payable with your business, then not all of your sales transactions will clear instantaneously, this is where tracking cash flow can get tricky for some businesses.
In Australia, more than 63% of small businesses have experienced cash flow issues, and approximately $5.8 billion worth of small business opportunities were lost due to insufficient cash flow. These figures indicate that small businesses are struggling to either keep on top of their expenses or are having difficulty collecting payments promptly. Below are three approaches that you can take to manage your cash flow better:
1. Conscious spending:Having an adequate budget to follow strictly is essential, especially during the slow periods. To do so, you need to be mindful of your business spending and know exactly where your money is going. The following list of common business expenses is a good starting point to map out your financial commitments and gain a better understanding of your cash flow.
- Rent or mortgage payments for the business premises
- Rent payments for plant and equipment
- Utility bills such as electricity and telecommunication
- Payroll for employees and contractors
- Inventory stocking
There will be overhead costs you can’t avoid. However, during the slow period, take the opportunity to thoroughly check your business’ spending report and find areas where you can cut costs and reduce your overall monthly spending. Below are some tips to take into consideration:
- Review all monthly payments for hire equipment and do some comparing to see if there’s a better deal elsewhere. A small reduction in monthly payments can improve your overall cash flow.
- Install energy-efficient fixtures such as sensor lights which automatically turns off when no-one is in the room. This can reduce your overall electricity payment in the long run.
- Set up quarterly inventory audits to ensure that the actual number of your office supplies aligns with the amount that’s on record. This will prevent unnecessary purchase and excess supplies.
- Check all maintenance logbooks to ensure that equipment such as printers are serviced regularly. This will help prevent unfixable breakdowns in the future.
2. Avoid late fees: When all the bills come flowing in, you might want to close your eyes and forget that they’re there but turning a blind eye will do you more harm than good. As a small business owner with multiple responsibilities, it’s understandable that you might occasionally forget to pay your bills on time and as a result, you’re hit with the late fees. There’s no doubt that late fees will make it challenging to maintain your positive cash flow. However, an easy way to manage your bills is to set up automatic payments from your bank account also known as a direct debit. This will allow you to set and forget without incurring late fees.
3. Keep on top of your receivables: There is no point in making sales if you’re unable to collect your hard-earned money. You need to follow up on outstanding invoices to ensure that you are receiving payments from your clients. Not only should you keep a detailed list of the money that is owed, but it’s essential to have a follow-up system if these payments are late. Stick to the payment plan and make sure that receivables don’t fall low on your priority list even if you are busy with other business management tasks. You might be thinking “easier said than done” but with the right system in place, you can manage your payment efficiently with little effort.
There are tools now on the market that can help both you and your clients manage the cash flow. FlexiFund It is a funding software that provides your customers with flexible payment options while securing the full payment for your services. Not only will you add a new income stream and improve the cash flow in your own business, but you will also be helping your clients with their cash flow.
Get in touch to find out more about FlexiFund It Insurance Premium Funding Software; a cloud-based, easy-to-use solution developed to serve the insurance industry.