Conquer Cash Flow Nightmares and Energise Your Ultimate Success

by | Jun 13, 2023

Everyone knows that “cash is king”, but not everyone knows it involves a bit more than checking your bank balance every day. When I ask small business owners what keeps them awake at night; it’s often cash flow..

FACT: 60% of new businesses in Australia will fail in the first three years, and of those who fail 50% are profitable

In my experience, I continue to be alarmed by how many business owners have no idea of what’s around the corner financially.  They might look at their bank balance regularly and may look at their P&L occasionally and assume they know all they need to know. Wrong.  Those are the business owners that make up the alarming statistics of business failures.

Avoid a Cash Flow Crisis

If you have ever been blindsided by an unexpected tax bill, scrambling to find funds, you know how stressful that can be.  As a CFO for 15 years managing the cash in a large building business I am going share with you some of my tips to avoiding a cash flow crisis.

8 Practical Tips to Managing Cash Flow

Let’s dig a bit deeper into managing cash flow.

1: The Viability of Your Commercial Model

Sounds obvious but ensure that your business model is commercially viable in that you can charge enough to cover your overheads and pay yourself.

2: Shorten Your Cash Cycle

Get the job done quickly. The shorter the time from making the sale to finishing the work and invoicing the client the better. Where possible ask for a deposit upfront and/or invoice in instalments.

3: Embed a Strong Cash Culture in the Business

Strengthen the cash culture by talking cash across all levels of the business.  Meaning ensure that everyone understands their part in the process and the implications of not doing their bit. For example, a sales rep who is sloppy with their paperwork and doesn’t provide all of the correct billing details will cause you significant delays in getting paid promptly.

4: Good Credit Control Practices

Put in place a system for invoicing and following up on payment from the outset including:

  • Send out your invoices as soon as possible after service delivery. Statistically the longer the period of time from service delivery date to invoice date, the longer it will take you to get paid. Personally I have developed a system of invoicing the same day service delivery is complete. Why?  The value of the service you delivered diminishes over time. As time goes on, your customer contact may leave the organisation, or they change systems.   If you don’t get around to invoicing your client for weeks or months that may well assume you don’t need the money.
  • Ensure you have all the correct billing details (entity name, ABN, contact name, email address and mobile number).
  • Understand the client’s process – ensure you obtain and quote a customer order number (if required). If the client uses a payment portal, learn how to “play their game”.
  • Turn the “Auto-Reminder” function on in your accounting system, but don’t rely on it. Don’t just assume it lands in the right person’s inbox and that they do what you want them to do with it.
  • You need to develop a system for chasing up overdue invoices and stick to it religiously. For example, overdue by 1 day send the first reminder letter. Overdue by 5 days get on the phone. Overdue by 10 days, second reminder letter plus another phone call etc. At what point do you send a letter of demand.
  • Get a good bookkeeper or accounts clerk who has a bit of “bulldog” in them to do this. In my experience asking an office admin person to chase up debts is rarely successful, especially if they haven’t had any training. They are probably too “nice”, hate the thought of phoning someone to chase money and therefore won’t do it. They will just send a polite email every now and then, if they have time. It doesn’t work.

5: Terms & Conditions

Use a lawyer to draft your T&Cs so that they work in your favour. As a small business negotiate credit terms that work for you, and not necessarily the customer. Don’t be afraid to ask for 7 or 14 days payment terms from date of invoice and not from end of month, and ensure it includes the right to charge interest on overdue amounts and costs of recovery.

6: Get Close to your Numbers

Know what’s coming up for payment and when. You need to understand the liabilities that are in your balance sheet.  Work closely with your accountant/bookkeeper to stay on top of this.  But don’t assume your bookkeeper will point out that your BAS is going to be $x next month.  They are probably assuming that you are all over it.

Look at your debtors listing regularly to know who is overdue with payment.

7: Forecast Your Cash

A cash flow forecast is a MUST HAVE and not a nice to have. A good habit to get into whether you’re a sole trader or much larger business is to forecast your cashflows on a regular basis and monitor your actual cash flows against it.  This will help avoid the unexpected, enable you to foresee the gaps and take action accordingly. For example, reduce the unnecessary expenses or defer major items.

8: Keep Money in the Business

When you’re feeling a bit flush, beware taking too much cash out of your business for yourself in dividends or drawings without being fully aware of what liabilities are coming up for payment. If the business needs plant and equipment consider leasing options to enable you to retain your cash for working capital purposes.

“Managing cash flow is like breathing to your business. Without it, your business cannot survive”Richard Branson

If your business isn’t in the position to employ a high calibre senior finance person now, but you need access to a finance professional for objective and discrete advice, I would love to have a chat about your business finances. I am also a qualified International Coach Federation Associate Certified Coach. Alternatively, you may like to join one of my financial literacy workshops.

Written By Debbie Millard

Master your business through strong leadership, knowing your numbers and empowering your people

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