Cash flow problems? Here are 5 tips to improve your cash flow

Cash flow is the movement of money in and out of a business over a certain period of time. It shows the available amount of cash a business has to cover expenses, pay debts and invest in operations.

 

Why does cash flow matter?

Having positive cash flow is essential for a business to run smoothly and succeed long term. A positive cash flow, sometimes known as being ‘in the green’ means you have more money coming in than going out. It allows a business to cover its expenses, invest in growth, and build up reserves for unexpected expenses or economic downturns.

Negative cash flow (when your expenses are bigger than your revenue) can lead to financial difficulties like not being able to pay wages, taxes, for equipment and potentially even using your personal money or going bankrupt if a business is unable to pay its debts and expenses.

 

Why is cash flow difficult to manage?

Because it’s complicated! Business cash flow isn’t the same as keeping track of your personal bank account. If you’re working in your business, providing your service is your priority each day. You’re likely working on multiple projects, taking multiple payments, late payments and scrambling to get your compliance requirements, payroll and equipment costs sorted at the last minute.

 

“Months of negative cash flow can leave small business owners struggling to pay essential costs like wages and rent. This, in turn, compromises the ability of small businesses to stay afloat, hire, and grow.”

Chief customer officer at Xero, Rachael Powell

Xero’s Crunch: Cash flow challenges facing small businesses report found that in Australia:

 

  • 92% of small businesses experienced at least one month of negative cash flow in 2021 and for 20% it lasted more than six months.

 

 

What are the three types of cash flow?

1 Cash flow from operating activities – this is the amount of cash generated or used in the day-to-day operations of a business. It includes sales revenue, operating expenses and taxes.

 

2 Cash flow from investing activities – this is cash used for long-term investments, like property, equipment and other assets.

 

3 Cash flow from financing activities – this is cash used for financing activities, like borrowing or repaying loans, issuing or repurchasing stocks, or paying dividends.

 

What is a cash flow statement?

A cash flow statement is a summary of all the money coming in and out of your business for a set time period. A cash flow statement can tell you where your money is coming from and where you’re spending it. Setting up the statement of cash flow helps cash flow forecasting and analysis.

 

Cash flow problems? Here are 5 tips to improve your cash flow

 

Here are 5 tips to help cash flow and keep your business running successfully.

 

  1. Reduce Expenses

One of the most effective ways to increase cash flow is to cut down expenses. Go over your business expenses in detail and see where you can cut costs. For example, can you renegotiate contracts with suppliers? Reduce rental spend? Get supplies or subbies at a better rate?

 

  1. Increase margin and/or amend the pricing of your services

Make sure you understand the value you offer. Have a solid formula for pricing and really understand your target market. Remember, more sales don’t necessarily = more profit!

 

  1. Offer Payment Incentives

Offering incentives for customers to pay early can help increase your cash flow. For example, you might offer a discount to customers who pay within a certain period of time or waive fees for customers who pay upfront.

You can also consider offering payment plans, to can help you get paid faster and reduce the risk of late (or no!) payments.

 

  1. Improve Supply & Equipment Management

Effective supply management is essential for maintaining a positive cash flow. If you have too much inventory on hand, you tie up your cash in unsold supplies. If you have too little inventory, you risk losing sales and potential revenue.

To improve supply and equipment management, it’s important to be organised and know what projects are coming up, the lead time on supplies and the amount you need and adjust accordingly.

 

  1. Automate, outsource, simplify   

With the right software and team supporting you, you can seriously cut down the time you spend on repetitive tasks. From accounting software (read our Xero VS QuickBooks blog here), receipt capture apps, job quoting apps and job management apps – there’s pretty much a software for everything!

Outsourcing to a specialist like a bookkeeper, virtual assistant or marketing freelancer can also leave niche areas of your business to experts who can get it right for you, while you use your time to focus on your expertise and finding some balance.

 

 

How can a bookkeeper help you manage and improve your cash flow?

A bookkeeper can play a crucial role in helping to manage and improve your business’s cash flow by:
 
  1. Monitoring and Tracking Expenses

Bookkeepers can monitor and track all expenses, including incoming and outgoing payments, bills, and invoices. By keeping track of these transactions and allocating them accurately, a bookkeeper can help you to identify areas where expenses can be reduced.

 

  1. Invoice Management

A bookkeeper processes invoices correctly and on time. They can send payment reminders to customers and follow up with late payments. This can help to improve cash flow by making sure payments are received on time, which can reduce the risk of cash flow shortages.

 

  1. Accurate Record Keeping

Bookkeepers keep accurate records of all financial transactions, which can help to provide insights into your business’s cash flow. These records can help you to understand how much cash you have available at any given time, and help you to make smarter financial decisions.

 

  1. Cash Flow Analysis

A bookkeeper can analyse your business’s cash flow statements and help you to understand where your money is coming from and where it is going. They can identify patterns in your cash flow and help you to identify areas for improvement

 

  1. Budgeting and Forecasting

A bookkeeper can help you create a budget and a financial forecast, to plan for future expenses and identify potential cash flow issues. By better understanding your business’s finances, you can plan ahead and make sure you have enough money for a rainy day.

 

 

Conclusion

By now you can see how important understanding your cash flow is.

We covered:

  • The definition of cash flow
  • Why cash flow matters
  • How to create a cash flow statement
  • 5 tips to improve your cash flow

 

A bookkeeper can provide a wide range of services to help manage and improve your business’s cash flow. By monitoring expenses, managing invoices, keeping accurate records, analysing cash flow, and helping with budgeting and forecasting, a bookkeeper can help you to make better financial decisions and avoid cash flow problems.

 

Not sure whether you’re ready to hire a bookkeeper? Read this: 8 signs it’s time to hire a bookkeeper

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