How to manage cashflow in a small business

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Cash is king, as every small-business owner knows only too well. Even profitable businesses can fail if they do not manage cashflow. Here are some tips on avoiding those cashflow stresses.

  1. Do your forecasts

Jessica May is the founder and CEO of Enabled Employment, an online labour hire service that works with employers to find job opportunities for skilled people with a disability. She says the key to managing cashflow is “keeping on top of your expenses.”

May suggests establishing processes to help project your expenses so you can track what you have in the bank vs. upcoming costs. “We project five to six months ahead,” she says, “we use spreadsheets that automatically calculate the amount we expect to have coming in vs what is projected to be going out, and we work with a CFO contractor to help us out.”

A simple excel sheet will help you record actual cashflow and track it against the forecast. Don’t forget to include your BAS payments, super, GST and extra staff or stock for busy periods. If you anticipate a shortfall, consider a short-term loan to fill the gap, such as a small business loan from a small business specialist lender like Prospa.

  1. Manage your accounts

Being vigilant about invoicing is key to managing cashflow. Issue invoices immediately once a project is finished, and make sure you follow up on overdue accounts. May advocates using cloud-based accounting software to eliminate human error and save time on admin. “Our fully automated system automatically uploads expenses to Xero,” she says, “we’re also careful with how we manage expenses. With Xero I can either pay expenses as soon as they come in or add them to the expense list to be paid at a later date.”

Try and negotiate longer payment terms with your suppliers. For example, make your payment terms 30 days or less, and payables 60 to 90 days.

Finally, make it easy for customers to pay you, via bank transfer, credit cards and PayPal, so there is no need to wait for the “cheque in the mail”.

  1. Slash your stock

Inventory ties up cash and harms liquidity, as well as increasing associated costs like insurance and storage.

Practice good stock control by tracking and accounting all the items you sell, use or manufacture and finding the right suppliers for your business. For example, your supplier may be able to hold your stock, or ship it straight to customers on your behalf.

If you have stock that won’t budge, consider running a competition that can be promoted through social media, or implementing a bundle offer. For example, a clothing retailer may run an offer such as “two t-shirts for $20” rather than selling each garment for $15 each.

Forecasting cashflow can be challenging, but an accurate forecast is likely to help your business iron out any issues. Managing cashflow is vital for survival in business. If you need funds for any business purpose, talk to an online lender like Prospa. Prospa offers unsecured business loans from $5,000 to $250,000 with most loans approved within 24 hours. If you need funds tomorrow, contact Prospa today.

Cashflow worries? Talk to Prospa about a business loan that is tailor-made for small business owners.

Brought to you by Anna Fitzgerald, Prospa