{"id":270418,"date":"2024-07-08T15:48:26","date_gmt":"2024-07-08T03:48:26","guid":{"rendered":"https:\/\/www.reckon.com\/au\/?post_type=sbh&#038;p=270418"},"modified":"2024-07-11T18:21:26","modified_gmt":"2024-07-11T06:21:26","slug":"cash-management-techniques","status":"publish","type":"sbh","link":"https:\/\/www.reckon.com\/au\/small-business-resources\/business-finances\/cash-management-techniques\/","title":{"rendered":"Cash Management Techniques"},"content":{"rendered":"<p>[et_pb_section fb_built=&#8221;1&#8243; custom_padding_last_edited=&#8221;on|phone&#8221; _builder_version=&#8221;4.23&#8243; custom_padding_tablet=&#8221;&#8221; custom_padding_phone=&#8221;0px||||false|false&#8221; locked=&#8221;off&#8221; global_colors_info=&#8221;{}&#8221;][et_pb_row column_structure=&#8221;1_3,2_3&#8243; _builder_version=&#8221;4.23&#8243; background_size=&#8221;initial&#8221; background_position=&#8221;top_left&#8221; background_repeat=&#8221;repeat&#8221; width=&#8221;100%&#8221; custom_padding=&#8221;||0px||false|false&#8221; global_colors_info=&#8221;{}&#8221;][et_pb_column type=&#8221;1_3&#8243; module_class=&#8221;table-contents&#8221; _builder_version=&#8221;4.23&#8243; background_color=&#8221;#f3f2f6&#8243; custom_padding=&#8221;25px||25px||true|false&#8221; sticky_position=&#8221;top&#8221; sticky_limit_bottom=&#8221;section&#8221; sticky_position_tablet=&#8221;top&#8221; sticky_position_phone=&#8221;none&#8221; sticky_position_last_edited=&#8221;on|desktop&#8221; pac_dcm_carousel_specific_module_num=&#8221;0&#8243; border_radii=&#8221;on|24px|24px|24px|24px&#8221; global_colors_info=&#8221;{}&#8221; custom_padding__hover=&#8221;|||&#8221;][et_pb_text _builder_version=&#8221;4.23&#8243; text_font=&#8221;||||||||&#8221; global_colors_info=&#8221;{}&#8221; background__hover_enabled=&#8221;on|desktop&#8221;][\/et_pb_text][\/et_pb_column][et_pb_column type=&#8221;2_3&#8243; _builder_version=&#8221;4.16&#8243; custom_padding=&#8221;|||&#8221; pac_dcm_carousel_specific_module_num=&#8221;0&#8243; global_colors_info=&#8221;{}&#8221; custom_padding__hover=&#8221;|||&#8221;][et_pb_text admin_label=&#8221;Copy paste body text here&#8221; _builder_version=&#8221;4.23.1&#8243; header_2_font_size=&#8221;32px&#8221; header_2_font_size_tablet=&#8221;30px&#8221; header_2_font_size_phone=&#8221;26px&#8221; header_2_font_size_last_edited=&#8221;on|tablet&#8221; global_colors_info=&#8221;{}&#8221;]<\/p>\n<p><span style=\"font-weight: 400;\">Cash management techniques are the \u2018ABCs\u2019 of good business management. If your small business cash management techniques are subpar, your business will struggle to grow. Simple as that.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The core elements of how to manage cash in a small business and generate positive cashflow are:<\/span><\/p>\n<ol>\n<li aria-level=\"1\"><b>Business cash management techniques\u00a0<\/b><\/li>\n<li aria-level=\"1\"><b>Shortening the sales cycle<\/b><\/li>\n<li aria-level=\"1\"><b>Understanding working capital<\/b><\/li>\n<\/ol>\n<p><span style=\"font-weight: 400;\">To be a cash positive and well managed small business, you\u2019ll need to know these concepts back to front.\u00a0<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-265995 size-full aligncenter\" src=\"https:\/\/www.reckon.com\/au\/wp-content\/uploads\/2023\/08\/5._Cash_management_techniques.png\" alt=\"\" width=\"940\" height=\"340\" srcset=\"https:\/\/www.reckon.com\/au\/wp-content\/uploads\/2023\/08\/5._Cash_management_techniques.png 940w, https:\/\/www.reckon.com\/au\/wp-content\/uploads\/2023\/08\/5._Cash_management_techniques-480x174.png 480w\" sizes=\"(min-width: 0px) and (max-width: 480px) 480px, (min-width: 481px) 940px, 100vw\" \/><\/p>\n<h2><span style=\"font-weight: 400;\">1) Business cash management techniques<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">As a small business, cash management techniques are essential to prosperity and growth and there are some essential cash flow management strategies for running a business.<\/span><\/p>\n<h3><span style=\"font-weight: 400;\">Get on top of invoices and payments<\/span><\/h3>\n<p><span style=\"font-weight: 400;\">If your small business is invoice reliant for payment, this can be one of the key pitfalls of proper cashflow management.<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Keep on top of your accounts receivable and chase payments quickly and without guilt or hesitation.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Have an accounts receivable ageing report to monitor your lagging customers and react accordingly to chronic late payers (perhaps require upfront payment from these customers).<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Tighten terms of payment and enforce penalties for late payments.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Look into asking for down payments before work commences.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Use accounting software to send invoices without delay, immediately upon beginning work.<\/span><\/li>\n<\/ul>\n<h2><span style=\"font-weight: 400;\">Cashflow forecasting<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Managing cash flow effectively remains a significant hurdle for many small businesses in Australia. It\u2019s hard to manage your cash if you don\u2019t know when it\u2019s coming or have any idea in what quantity.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Take advantage of easy reporting in your software:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Luckily, almost any quality cloud accounting app can produce a cashflow forecasting report with little effort. All you need is a decent range of data \u2013 one year should be sufficient.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The cash flow forecast will compare the cash you have on hand, as well as money that should be paid to you, against the money you need to pay within the same period.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">For many smaller businesses having cash readily available is crucial to their success, therefore having a solid base for forecasting cash (i.e., reliable historical records as well as visibility of future transactions) can be extremely beneficial.<\/span><\/li>\n<\/ul>\n<h2><span style=\"font-weight: 400;\">Small business cash flow management<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Software and professional advisors are a key element to your small business cashflow management.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">There are a few cash flow management strategies for small business that you can utilise.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Be sure you\u2019re implementing the following to make monitoring, reporting, invoicing, and projection a simple affair.<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Make use of cloud accounting software<\/b><span style=\"font-weight: 400;\"> to easily and visibly monitor and report on your ingoing and outgoing funds, while also being able to send invoices quickly and be sure your business dealings are compliant.<\/span><\/li>\n<\/ul>\n<ul>\n<li aria-level=\"1\"><b>Use your business advisor <\/b><span style=\"font-weight: 400;\">to maximise your management of cashflow. Your advisor, accountant or bookkeeper is trained and skilled in exactly this function, so it\u2019s worth its weight in gold to consult with them to improve cashflow.<\/span><\/li>\n<\/ul>\n<ul>\n<li aria-level=\"1\"><b>Make it a regular part of your week <\/b><span style=\"font-weight: 400;\">to actively scrutinise your invoices, accounts receivable, debts and expected incoming cash. Neglecting these tasks is a key driver of poor cashflow management.<\/span><\/li>\n<\/ul>\n<h2><span style=\"font-weight: 400;\">Shortening the sales cycle<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Your sales cycle is extremely important to your cash management and needs to be attended to.<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Your sales cycle is essentially the time it takes for a customer to find your business, order your products or services, and deliver unto you that much needed cash.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">As a matter of practice, you should create a flow diagram and plot a timeline of your customer journey and sales cycle.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">When you have done this, you may be shocked to learn how long your sales cycle is. For some of our customers, it\u2019s as high as six months. This huge time difference between effort and payoff makes a difference to cashflow and management.<\/span><\/li>\n<\/ul>\n<p><i><span style=\"font-weight: 400;\">Your mission is to do everything within your power to shorten the sales cycle and improve cashflow.<\/span><\/i><\/p>\n<p><span style=\"font-weight: 400;\">Understanding your sales cycle is critical if you want to speed up cash flow in your business. With sales, speed is key and the quicker you can get cash into your business the less reliant you\u2019ll be on bank loans and other funding sources down the track.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Some ways to shorten your sales cycle:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Clarify your target market and ensure you target pain points with sales and marketing techniques.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Concentrate on hot leads and consider getting rid of \u2018cold leads\u2019 \u2013 target your efforts more effectively.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Automate and get rid of time-wasting tasks \u2013 make sure that the sales team solely focuses on prospecting leads and converting them to customers.<\/span><\/li>\n<\/ul>\n<h2><span style=\"font-weight: 400;\">Understanding working capital<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">In a perfect world, a business would buy stock or provide a service one day and get paid for it the next, creating a perfect cashflow scenario. But understanding working capital is more complex than that.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">With no lag between money out and money in, there would be no need to hold funds within the business to make the next sale or to cover expenses like wages, rent and tax.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">In reality, every small business needs a pool of available cash on hand to span the gap. This available pool is the money your business has in the bank to fund a company\u2019s daily operations \u2013 known as working capital \u2013 and it\u2019s the essential bloodline of every business.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">You\u2019ll likely understand from experience how important working capital is, but you may need help calculating and working with this metric.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">You can start this understanding by using the following simple accounting formula. First create two columns and list current assets and current liabilities.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">From there, use this incredibly simple formula: <\/span><i><span style=\"font-weight: 400;\">current assets <\/span><\/i><span style=\"font-weight: 400;\">\u2013 <\/span><i><span style=\"font-weight: 400;\">current liabilities<\/span><\/i><span style=\"font-weight: 400;\"> = <\/span><b>working capital<\/b><\/p>\n<p><b>Ways to improve working capital:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Review terms on your invoices and consider shortening payment windows and increasing penalties for late payment.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Pay your invoices on time and ask for discounts.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Monitor working capital regularly to predict cash outgoings and pinpoint choke points ahead of time.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Work on building a pool of cash reserves to dip into, as required, when a shortfall presents itself.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">In paying attention to the above cash management techniques, you\u2019ll have a solid basis from which your business can generate positive cashflow and be on sure footing to accelerate growth.<\/span><\/p>\n<p>[\/et_pb_text][ba_social_share icon_bg=&#8221;#03002e&#8221; icon_padding=&#8221;10px|12px|10px|12px|true|true&#8221; layout=&#8221;classic&#8221; show_text=&#8221;off&#8221; btn_padding=&#8221;0px|0px|0px|0px|false|false&#8221; btn_bg_color=&#8221;RGBA(255,255,255,0)&#8221; _builder_version=&#8221;4.23&#8243; _module_preset=&#8221;default&#8221; custom_margin=&#8221;50px||||false|false&#8221; custom_padding=&#8221;25px||||false|false&#8221; custom_css_before=&#8221; content: %22SHARE THIS%22;|| font-size: 16px;|| font-weight: 700;|| line-height: 22px;|| letter-spacing: 0em;|| text-align: center;|| color: #ff5447;|| margin-bottom: 10px;|| display: inline-flex;|| position: absolute;|| margin-top: 10px;&#8221; border_width_top_main=&#8221;1px&#8221; border_color_top_main=&#8221;#e4e4e4&#8243; border_radii_icon=&#8221;on|5px|5px|5px|5px&#8221; global_colors_info=&#8221;{}&#8221; custom_css_before_last_edited=&#8221;off|desktop&#8221;][ba_social_share_child _builder_version=&#8221;4.23&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][\/ba_social_share_child][ba_social_share_child network_type=&#8221;facebook&#8221; _builder_version=&#8221;4.23&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][\/ba_social_share_child][ba_social_share_child network_type=&#8221;linkedin&#8221; _builder_version=&#8221;4.23&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][\/ba_social_share_child][ba_social_share_child network_type=&#8221;email&#8221; _builder_version=&#8221;4.23&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][\/ba_social_share_child][\/ba_social_share][\/et_pb_column][\/et_pb_row][\/et_pb_section]<\/p>\n","protected":false},"excerpt":{"rendered":"<p>If your small business cash management techniques are subpar, your business will struggle to grow. Simple as that. Read our article to find out about techniques to help be a cash positive and well managed small business.<\/p>\n","protected":false},"author":6,"featured_media":272881,"menu_order":0,"template":"","format":"standard","meta":{"_et_pb_use_builder":"on","_et_pb_old_content":"","_et_gb_content_width":"","inline_featured_image":false,"_lmt_disableupdate":"no","_lmt_disable":"","footnotes":""},"sbh_category":[206],"class_list":["post-270418","sbh","type-sbh","status-publish","format-standard","has-post-thumbnail","hentry","sbh_category-business-finances"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v27.5 (Yoast SEO v27.5) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Cash Management | Small Business Resources | Reckon AU<\/title>\n<meta name=\"description\" content=\"Would you like to know more about cash management in a small business? 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