Best Ways to Improve Business Cashflow

Best Ways to Improve Business Cashflow
  • Businesses work for money. I mean, apart from any other good cause, goal, etc., if you speak about material rewards, then businesses do work for cash.
  • This means that cashflow management should always be a priority for business owners in order to know where their money is coming from and where some of it is going to.
  • A big part of a good cashflow management strategy is to have a cloud accounting software, for example, which will help you get all of your company's cash history up-to-date and accessible at all times. But that's just the beginning.

It’s already March. I know, we say it each year, but time flies when you’re having fun.

Have you noticed that often-inevitable ebb in your cashflow? It can certainly make having fun a little more challenging at this time of year. Let me tell you, it’s completely understandable. The summer months and Christmas closures often mean there’s simply less money coming in. On top of that, research shows that the average length of time for a 30-day invoice to be paid increases during January and February.

So… new year, new you, right? Everyone’s saying it, so why not? Except I’m going to add one more thing. New year, new you, and new ways to improve and ensure your business cashflow.

Those of you familiar with my approach to small business ownership will know the importance I place on taking a step back and gaining some perspective – on yourself and on your business. Guess what? It’s no different when it comes to improving your cashflow.

You know how to earn your money, but earning your money and getting your money are two very different things. So here are a few of the best practices I’ve learnt to implement, and come to value, to counter the cash flow woes.

Zoom out

Start by making sure you’re viewing your business and its practices through a wide-angle lens. Taking a holistic approach and getting yourself out of the day-to-day grind is essential to improving your business cashflow. See the forest for the trees.

Too often, people fall into the trap of thinking business accounting is a simple equation. How much is coming in, how much is going out? But flow isn’t about the bottom line.

By definition, flow is a “steady, continuous stream.” It’s about timing and it’s about consistency. It’s about having enough time, money, and resources to be able to conduct your business all year ‘round.

I often find that our clients get caught thinking 30 days at a time, one invoice at a time, one payment at a time. They’re busy worrying about putting one foot in front of the other, when what they should actually be doing is taking the time to complete a proper warm-up, then picking up the pace and hitting a steady rhythm. Their business will get to its destination much faster, and its overall fitness will improve.

Instead of thinking about one thing at a time, start thinking about everything over time.

Plan, predict, forecast, ‘warm-up’

You’ve heard it from your mother, you’ve heard it from your teachers, you’ve heard it from your mentors, you’ve heard it from that annoyingly successful person in your office break-room, and now you’ll hear it from me.

Planning makes all the difference. Take time to create time, because you know what they say – time is money.

How does your cash balance fluctuate month to month? What cycles can you identify across a whole year?

Of course, you’ll have a broad idea of credits of expenditures, but be specific:

  • Wages,
  • supplies,
  • stock,
  • equipment,
  • rent,
  • taxes,
  • loan repayments – all costs that your business is likely to incur over the course of 12 months. List them, and note the dates that they’ll need to be deducted.

Those are the cons, how about the pros? Make a corresponding list of all the money your business will receive for that year. Earnings from clients and customers are, of course, the major ones, but be sure to include tax returns, interest on savings and investments. Now you should have a better idea of how your balance will shape up at the end of any given month.

Keeping yourself informed of these fluctuations sets you up to forecast the changes in your cash balance, and properly prepare for the high and low tides.

Establish habits & routine – essential to any fitness regime

Get your head in the cloud! Speaking of time flying, it’s 2018. Paper and even desktop accounting is increasingly a thing of the past. The more willing you are to embrace new technology, to explore and employ the multitude of available software, the easier and more efficient you will find your business accounting.

I cannot stress this point enough – and you won’t find a bigger advocate for cloud accounting than me! Help them help you.

Online products and cloud accounting tools will greatly improve the organisation of your organisation. The beauty of the cloud is its accessibility. Software such as QuickBooks Online or Xero allow you to access your billing from multiple devices – desktop, laptop, tablet, and mobile. Any device means anywhere, anytime. Anywhere and anytime enable a whole host of better practices. 

Software is designed for the express purpose of making things quicker and easier for its user and, most importantly, allows you to introduce automation. So get online, choose an application that suits the size and scale of your business, get a billing schedule up and running, and you are guaranteed to get paid quicker.

Speaking of getting paid…

Invoice initiation  

To continue (and possibly over-stretch) the running metaphor…

You’ve got to get out of blocks early, and with clear intent. How does that translate to cashflow? Send. Those. Invoices.

I know, it’s a pain. Why is it that sending invoices can be just as daunting as receiving them? No matter how great your clients and customer are, they’re not going to give you money unless you ask for it. You’ve simply got to prioritise your invoicing. No doubt you’ve done the work, so you have every right to request prompt payment.

This is where that new software of yours comes in. Quick and easy invoicing with the ability to schedule reminders for yourself and your customers.

Make sure to include a set of PAYMENT GUIDELINES on each of your invoices to make this as pain-free as possible and avoid casting yourself as the bad guy. A payment policy with short but flexible terms is the way to go. Incentivise early payment and introduce an interest rate to those clients who fail to pay on time. Make sure to offer a range of payment methods and open the communication lines between your business and clients.

Having clear guidelines but remaining adaptable to the various needs of each customer will greatly diminish the time elapsed between invoicing and payment. 

When the payee becomes the payer

Now, while it works in your favour to establish short payment terms for your clients, you want to see if you can extend the line out in the other direction a little. Talk to your vendors and see if you can establish a 30-90-day payment term. The buffer between billing and paying is a really valuable time-insurance.

Cut your losses

Could you honestly look me in the eye and tell me that you know exactly the total of your business’s monthly expenditure? No, I didn’t think so. Overheads – they’re often out of sight, out of mind, but they can also be like a leaking tap – draining money away simply because you haven’t cared to tighten screws.

I regularly encounter clients who are spending way too much cash on fixed assets. Vehicles, machinery, subscriptions, staff overtime, that WordPress plug-in you no longer use – it all adds up to negative cash flow. Be smart. Chase a better phone and internet deal, work with your staff to avoid overtime, consider leasing your vehicle and reap the rewards of the tax incentives.

The same goes for inventory. Possessing too much OR too little stock can cost you - in dollars and in customers. It’s all in the details. What may seem like small individual savings actually have significant repercussions for your cashflow.   

Have a rehab team on-hand

Sometimes you’ve done all the preparation you can, and you still get injured. It happens to the best of us, so don’t assume it won’t happen to you. Establish a line of credit with your bank, just in case. If you encounter deficit, if it's more ebb than flow during one particular month, then you’ll be well placed to absorb the unexpected.

The Finish Line

Unfortunately, it’s easy to let things slip. Operating a business is tough. It’s hard work, and often in service of others. I want you to make sure you’re getting promptly and properly repaid for that work. Remember: efficiency equals productivity.

It's critical to walk the walk when it comes to cashflow - even if you're not generating revenue yet, or if you're expecting funding. Create a useful, realistic budget of your recurring expenses from the information you have available. Map out a season's worth of potential invoices and bills, using realistic timelines and focusing on the dates that money will enter or leave your account.

Find a software tool that integrates with your accounting software and offers you a look into the upcoming weeks and months ahead - bonus if you chose one that will allow you to test scenarios against one another. Check back in with your cashflow twice a week to keep it updated and to optimise the timing of big bills and invoices as your business gains maturity.

-Blaine Bertsch, Co-Founder & CEO at Dryrun

Get a plan, manage your cashflow, and watch the water levels rise. 

Jason Robinson

Director at RBK Advisory

I started my accounting career at a big local firm before moving into a boutique accounting and business advisory client management role in the city. It was here I got mentored by some of the best in the business. After honing my skills, learning the ropes inside and out and becoming a qualified CPA and certified Xero Advisor, it was time to follow through on that bloody good idea from a few years ago. RBK Advisory was born and I haven’t looked back!