Cash flow management tips for small business owners 

Statistics indicate more than 60% of small businesses in Australia stop operating within the first three years, and many of these failures are due to poor management and inadequate cash flow. If you’re starting a new business, or growing your existing company, it’s so important to stay on top of the numbers and have your eye on the 12 months ahead. 

Think of cash flow as the blood running through the arteries of your small business. You use it to do those important things that keeps everything moving like buying stock, covering expenses and paying staff.

Why is it so important?

Cash Flow or what is commonly referred to as Working Capital is the heart of any business. Without it a business cannot survive.  Many small business owners make the mistake of spending without consideration for the future. For example, buying excess inventory that ties up cash in inventory versus having it readily available to meet short and long term obligations of the business.

How does it impact small business loans?

Cash management is even more important when you consider how tight the banks are with small business loans and other money vehicles that can be used when cash runs short.

Additionally, smaller businesses run the risk of losing employees, suppliers and facing interest and penalties as a result of poor cash management. Staying current on cash needs means balancing some of the other aspects of your business like tax payments, accounts receivable and inventory. That’s the best way to understand how much money you need in the system for each period.

This must then be compared to the estimated cash receipts for the same period to determine whether or not the cash flow will be sufficient. Think of it as a balancing act of sorts.

How do you improve your cash flow?

Of course, most small business owners want to know how to improve their cash flow and keep their business healthy. There are a few good suggestions including leasing rather than buying equipment, this is one of the best ways to make sure that you’ve got money for day-to-day operations because leasing allows you to pay in smaller chunks which boosts your cash flow.

How do credit checks help?

If your customers pay in cash you can bypass this step. Otherwise it’s a good idea to do credit checks on all the clients who want credit to purchase your goods and services. Every small business hankers to make that extra sale, but late payments always take a dent out of your cash flow in the end.

Staying on top of things is critical by maintaining control on your payment terms and be clear with your customers what they are before they purchase.

Why are down payments important?

Asking for a down payment or a deposit on certain kinds of purchases is a good idea. That way you are not fronting the cost yourself. Small businesses need to include all the necessary tax payments in their cash flows.

Keep your bookkeeping simple also, you don’t need fancy software to do it unless you have a lot of cash coming in and going out of the business. The more control over the numbers in your business, the better you will be set up for growth.

At Morris Finance we offer a range of commercial products to provide cash flow for your business. Our team of dedicated finance brokers and new business specialists can provide you with information and access to financial solutions that will allow you to grow your business.

Contact us today to learn more about how we can improve your cash flow.