How To: Turn Your Cash Flow Woes into Cash Flow Wins

Are those lagging customer payments creating a cycle of stop-start lurches in your business’ cash flow?

Sending reminder after reminder to clients whose first and final accounts remain unpaid is one of the most significant reasons why small businesses struggle to survive.

The latest data from the Australian Investment and Securities Commission (ASIC) has revealed that 47 per cent of small to medium sized business failure is attributed to poor cash flow.

Your products and services may be in demand, you may be making a profit, but the struggle of building reliable cash flow can still deliver the knock-out punch to your financial future.

Inside Small Business has confirmed that outstanding customer accounts totalling more than $76 billion is forcing Australian small business owners to dip into their personal accounts to manage cash flow. Xero analysis also shows that some small business sectors wait more than 45 days for customers to pay their debts.

Why is protecting your cash flow so important?

It’s hard work staying across the many aspects of your business – however when the cash flow is coming in fits and starts, your focus is on the money rather than the business.

Protecting your cash flow builds resilience and certainty, meaning your focus can shift with confidence to the actual core operations of your business.

Importantly, it also protects your lifestyle. Maintaining a reliable and positive cash flow means you will not be digging into your personal accounts in order to keep your business afloat.

How can you protect your cash flow?

There are other ways for small businesses to overcome the cash flow woes – one which alleviates the stress of meeting personal living costs and also protects the ebbs and flows of managing your business’ financial resilience.

Three key ways to protect your financial resilience include:

1. Structure your business activities to ensure consistent revenue and manageable expense flows are set in place.

If you map out all expenses and when they will be due for payment against your income, you will be able to determine any deficiencies and how best to manage them. Cash flow forecasting can be done using cloud-based tools, or a trusty spreadsheet. Knowing when you’re likely to have peaks and troughs over the next three, six or 12 months will help you plan your purchases, and it can also be early indicator that your business may be heading towards financial trouble.

Consider the larger expense items – such as plant and equipment purchases – and determine the best ways to meet the initial outlays and ongoing maintenance costs of these assets.

2. Have a contingency plan in the event of emergencies.

It’s a business owner’s worst nightmare: imagine that key piece of equipment breaking down and not being repairable, and you don’t have the cash to buy a new coffee maker/ computer/ motor vehicle or whatever it is you need to keep the revenue rolling in.

Your business will have particular pieces of equipment that it can’t function without. Sometimes this equipment breaks down and sometimes technology and its advancements have rendered it useless.

Have a contingency plan in place before a major breakdown. Failing to do so can compromise the future of your business – with the downtime of waiting for new equipment costing you income added to the potential financial drain of purchasing a new asset.

Regular maintenance and review of your equipment and stay up to date on any technologies that will impact on its life span. Investigate ways to keep your equipment up to date and maintained while protecting your cash flow.

3. Consider strategically financing key equipment to free up cash otherwise required for large purchases.

Business loans can support gaps in cash flow. Loans are available that will enable you to bundle maintenance costs and other expenses into the regular payment amount – offering certainty when setting your budget as well as ensuring your asset’s maintenance isn’t sacrificed when cash flow is stunted.

You can also choose loans that will help you stay up to date with the latest technological evolutions with an equipment rental loan option. This means that at the end of the rental term you give the asset back and then upgrade to the newest version.

Bigstone Finance can offer fast, flexible loans from $10,000 to $2,000,000 for assets and equipment for your business.

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