It’s been a tough two years for Australian small businesses, to say the least.
Pandemic induced shutdowns, reduced consumer confidence, low foot traffic, employee lay offs and the ever-looming threat of getting sick.
Yes, there was some reprieve through state and federal grants and support packages, but these were no silver bullet.
Promoting and ensuring a healthy cash flow was always a central pillar of a successful business. With threats and strains surrounding us, this is even more important than ever.
So, what can you do to ensure good cash flow in 2022?
Get your hands on any extra government support you can
While many state and federal packages are winding down, there are still current and available support measures that you can wrap your hands around.
These business life rafts exist for a reason, and you should be maximising their use by ensuring you’re receiving everything you qualify for.
Hot Tip: Check in with both your state and federal government websites and be sure you’re up to date on the current offers.
If in doubt, a quick check in with your bookkeeper, accountant or advisor will set the record straight.
Concentrate on a rainy-day fund
It may seem insurmountable for some but cutting back on your take home pay to build a rainy-day fund is an extremely valuable measure to mitigate cash flow issues.
If the pandemic throws you another curveball, key employees get sick, or supply issues impact your sales figures, you have a safety net to fall back on.
Hot Tip: Even if times are lean, having a few weeks of running costs set aside can keep your small business afloat during hard times.
Concentrate on your invoicing terms
This is a three-pronged method:
1) Tighten your credit control policies for clients
If you’re in the business of issuing invoices, you need to pay attention to your credit control policies. This includes shortening payment times and requiring down payments before work commences. You can also only place trust in previous clients or rely on credit checks for new clients.
2) Ask for looser credit control policies from your suppliers
On the other side of the coin, do what you can to get the most lenient terms from your own suppliers. Ask for longer payment times, installment options, and no down payments.
As Eliana Salazar, CFO of Alberta Women Entrepreneurs notes,
“Ask for the longest payment terms possible. Longer payments terms provide more of a buffer between your receivables and your payables, you have a better chance of receiving enough cash to meet your business needs.”
3) Use eInvoicing
To create an immediate and hassle-free process, rely on eInvoicing (online invoicing) over manual methods.
This means instant payment, automatic reminders and integrations with your accounting software and bank accounts.
This means you’ll shorten turnaround times, reduce admin, and have readily available reports, and high visibility over all invoices.
Regular and accurate reporting and forecasting
While you’re busy focusing on the work at hand, there needs to be meaningful time set aside to crunch the numbers.
Reporting on all the elements that make up your cash flow is fundamental to fully understanding where you stand. If you neglect regular cash flow reporting, you run the risk of oversights, blind spots, issues with paying suppliers and overextension.
Luckily, with well managed accounting software, it’s a rather simple affair to run cash flow reports.
Being able to create (and act upon) accurate forecasting is imperative to ensuring you have a handle on your cash flow. With a history of data in your accounting software, this becomes sharper and more reliable.
If you project a forecast as far in advance, with as much meaningful data as possible, you can head off potential issues before they occur.
As Jonathan Gass, Founder & CEO of Nomad Financial says on forecasting,
“A well-run business should build a 13 week cash flow forecast that takes into account the exact week in which a payment is expected to be either received or sent out.”
As with basic reporting, generating a cash flow forecast is easily achieved with your cloud accounting software.
Get serious about cutting your overheads
You can always trim some fat from somewhere. Always. Get frugal and start:
- researching new suppliers for a better deal
- asking for discounts in any form, at every opportunity
- looking at where expenses are unnecessary or could be trimmed
- seek fresher and leaner ways of operating
Fill your pipeline
Get militant about your sales pipeline and marketing ROI. This means looking at (and reducing) how much it costs per lead or per sale and being proactive in driving fresh leads into your sales pipeline. After all, your cash flow is only as good as your sales figures, despite how well you cut overheads, streamline processes or get paid faster.