Managing cash flow can be one of the hardest things for a business to achieve! We have some tips below to keep the cash flowing and your business looking healthy.
Ultimate Tax & Advisory Managing Director Bobby Serval said a business could be bringing in lots of money, but a lack of cash flow could be holding them back.
“It’s really important that a business understands their numbers and knows they will have enough money to pay their bills,” he said.
“More than that though, if a business is effectively managing their cash flow it means they are likely building reserves and this could be the difference between being able to seize an expansion opportunity that comes along.
“The old saying of you have to spend money to make money is often true, so having cash on hand is important, as well as having back up if economic conditions change.
“It is also important to note that cashflow isn’t just income and expenses. It is all incomings and outgoings such as loan repayments, director drawings, and other items that don’t show on the profit and loss statement that can also affect cash flow in a business.”
Separate business and personal finances
Keep your business accounts separate from personal finances to maintain clear financial visibility. This makes tax time a lot easier and means there is no mistaking where money belongs.
Planning and forecasting
Accurate cash flow tools can help you predict future expenses and profit, meaning you’re better able to identify shortfalls or seasonal trends in your industry. Xero has several reports that suit most small businesses. If you require more detailed reporting there are more advanced cashflow forecasting software available such as Fathom and Futrli.
Regular monitoring and reporting
The only way to stay on top of your finances is to look at them! We encourage owners to complete their bookkeeping weekly, and have a monthly check in. We complete management reports quarterly for BAS clients, making sure they are aware what to set aside for tax, and highlighting any key areas of concern – no one wants any surprises!
Inventory control
For those who sell products, it is important to avoid overstocking goods and having all your cash tied up in unsold goods. Keeping an eye on consumer demands, seasonal trends and historical data, this can assist with accurate ordering and prevent having too much stock on hand.
Invoicing
We encourage clients to send invoices immediately on completion of a service, as well as setting up payment reminders within your invoicing system to encourage prompt payments. A key to cash flow is receiving income – don’t be shy to ask for payment! Take some time to set up your invoicing system and reminders so it happens automatically in the background. We love Xero for their pre-filled email templates.
Rainy day account
Every business will face tough times at some point in their journey. For this reason we encourage businesses to build reserves. Ideally this would go into a separate account so it can be set aside for rainy day emergencies such as drastic changes in economic conditions. Having a rainy day account gives business owners some breathing room if times get tough, so basic operating expenses can be covered. In an ideal world, this rainy day account would be around three months worth of expenses.
At Ultimate Tax & Advisory we assist our clients to manage their cash flow with regular reporting and management reports, and also offer bookkeeping and payroll services to keep on top of business expenses. To find out more visit our website.
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