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23 Ways to Help You Improve Poor Cash Flow

Positive cash flow is crucial for any business’s financial success. If your cash flow is in a poor condition, your company is in a major trouble. There are a lot of tips and methods on how to improve poor cash flow, and most of them hold good advice in them but are usually incomplete. So, here is our ultimate list of 23 ways you can improve the cash flow of your company from all the aspects. As a business owner, you should know that cash is king. One of the top 4 reasons small businesses fail is due to a lethargic or negative cash flow. Below are a few stats to prove it. 20% of businesses fail in the first year.   Of all the small businesses that started in 2013 (1-19 employees), only 63.4% survived 3 years later. 43.7% report “inadequate cash flow” as the reason for failure.    33.9% report trading losses which affect cash flow. A lot of advice on cash flow tend to focus on one issue: managing the timing of goods and payment. When you receive money from your customers, When you pay your suppliers, and How long you keep stock on the floor before you sell it. However, after successfully working with SMEs for nearly a decade, I believe that it is a lot more than just timing. Sure, it does have a profound impact but it’s not the only factor affecting your company’s finances. Cash flow leakages can happen to any business, even those who don’t hold any stock, whose customers pay in advance or on time, and whose biggest “supplier” cost is their staff.   5 areas where you can improve cash flow I’ve outlined 5 main categories which make a difference to your business lifeline. Not every item in this list will apply to every business, so I encourage you to take what applies and not stress about the rest. Revenue/Income/Sales This is where it all starts. Without customers, sales or income, your cash flow is pretty much stuffed. In fact, you won’t have a business to show for. If your cash flow is poor, then you can use the strategy of increasing revenue or income to offset your troubles. 1. Think of add-ons to your suite of offerings. What can you sell or offer that customers need after buying their first product? Every product can have an add-on service such as maintenance. Every service can have an add-on product. What’s yours? Explore your “would you like fries with that?” value. 2. Using your skills and knowledge, you can offer or teach a Do-It-Yourself (DIY) model. A website designer client of mine, who specialises in SEO services, hosted 2 sold out SEO workshops teaching the basics of SEO and blogging. That was a great money spinner with very little cost to deliver. How can you apply the same model to your business? 3. Try switching to a model where you get recurrent sales, such as leasing instead of selling outright. What can you offer or sell monthly, quarterly or annually? This works for both products and services. 4. Offer packages at better payment terms. However, beware of getting into the habit of discounting. Make sure you know how much profit you make and that your discounts won’t make your business suffer. If you mark up your product by 25% - and make a 20% gross profit - discounting by 10% means you need to double the number of units you sell to maintain the same level of profit. 5. When was the last time you increased your prices? You should review prices from time to time. If this scares you, then do it one product, service, or group at a time. 6. Can you deliver your product or service in a shorter time frame while maintaining your price and value? If you are a service based business, try cutting labour hours. Remember, time is money! On the flip side, think of how you can improve efficiency to deliver the same product. Costs 7. Hunt down any financial leakages. The usual areas where you can reduce are phone, fuel, utilities, and office supplies. Review your sales and marketing costs. Are your advertising campaigns working? Are you tracking where your leads are coming from? Can you reduce that cost? 8. Look for any hidden costs associated with delivering your product/service which is draining your profit: freight, motor vehicle costs, bits & bobs. Can you charge your clients separately on a new line to recover these costs? Some accountants and lawyers charge a % disbursement cost to recover printing and stationery. 9. Get rid of products and services which are less or not profitable. These items drain your bank account and suck away your time. My clients have managed to cut offerings overnight and make more money and gain more time. 10. Review your team. You can convert staff to casual as full-time employees tend to cost more. You can also try outsourcing. Make sure you get HR advice in this area. 11. Contact your landlord to get a better deal. They may be open for negotiations as rent paid is better than no rent from a tenant that has closed thir shop. If that doesn’t work, do your best to get rid of that corner posh office. 12. Monitor your spending like a hawk. Never let go of the financial reins. This is your business’s lifeblood, so watch it carefully. Money owed to you 13. Make it easy for customers to pay you via your online accounting system or invest in a system that accepts credit/debit cards.  Always, and I mean always, be in control of how and when you get paid. (Beware of the new rules relating to excessive credit surcharges effective 1 September 2017). 14. For high-value sales, offer your customers or clients payment plans. Never, and I shall say it again, never deliver the complete service or product upfront under a payment plan if you don’t have control over when or how you get paid such as having their credit card details. It is best practice to make sure your costs are covered in the first month at least. If applicable, it is recommended that payment is recovered 50% (month 1), 30% (month 2) and 20% (month 3). 15. Set aside some time every week to review your debtors (accounts owing to you).  Follow up via phone, followed by text, email, and then post a statement as often as necessary to get the money in as fast as possible. We all know what happens with the squeaky wheel. 16. Invoice for your sales as soon as possible. The best option is invoicing on the same day of delivery or purchase. Billing in advance is even better. Make this a habit or part of your company policy. Money you owe   17. Contact a broker or your bank to review your financing options on all current debts. Can you refinance, restructure or consolidate to minimise monthly outgoings? 18. Check your debtor payment terms. Are they placing a strain on your cash flow? Would your business benefit from receiving 80% of issued invoice value within 24 hours by utilising a debtor finance facility? 19. What about your vehicles and equipment? Research and negotiate better refinancing options, which will reduce the strain on your cash flow. 20. DO NOT neglect your tax commitments or ATO debt. This is often the first point of neglect when businesses are struggling with cash flow. The ATO has more power than ever before and can negatively affect your credit rating. Your personal drawing or wage When cash flow gets a bit tight, business owners tend to take too long to review their personal spending habits, which were previously supported by good business profits and a healthy bank account. 21. Rigorously review your personal spending habits. Can you cut down on your personal salary, in the short term at least, to support a cash flow crunch in the business.  Nothing is forever. Besides, you may even find that you can adapt with a lower wage. 22. Be open and honest to your spouse or partner. Awareness, and not panic, will support the entrepreneurial spirit to think outside the box to improve profitability. 23. Contact your financial planner and review your personal insurances & super payments. Are you overpaying and can you find a better deal? Finally, remember to always seek professional advice regarding your finances. These ideas may work for some businesses but not for others, as they all depend on your circumstances, goals, and industry.

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5 Steps to Successfully Implement Your Cashflow Plan

Having and implementing a good cashflow plan means that you’ll have a clear understanding of what money comes into your business and how much money goes out of it. A lot of entrepreneurs lose track or fail to maintain a cashflow management plan due to focusing on other aspects that may seem more appealing. But your business success heavily depends on the financial stability and well-being of your company. In order to successfully maintain your business and always have cash in your company, here are the top 5 steps to nail a cashflow plan.   It’s fair to say that cashflow and budget management typically rank low on most peoples’ priority lists, especially for time-poor business owners. But while it isn’t exactly the sexiest of business ownership activities, the extent to which you can effectively manage your incomings and outgoings is, without doubt, one of the biggest predictors of your company’s long-term success. The term ‘cashflow’ is used to describe the movement of money in and out of a business each month. Essentially, the objective of any business is to have more money coming in each month than is going out, the term used for this is ‘positive cash flow.’ In Australia, lack of cash, or working capital, is known to be the primary reason that SMEs go out of business. “Cash is king as we all know. It really is the life blood of your whole business. If you don’t have cash, you can’t buy stock, pay bills, hire staff – you need to be on top of your cashflow if you want to succeed in business,” says Paul Bevan, CEO at Boss Finance Australia. According to Xero’s recently launched Small Business Insights research which reviewed the aggregated data of more than 500,000 Australian small businesses, only 50.7 per cent had a positive cashflow as of June 2017. “Seasonal businesses are at greatest risk of negative cashflow because they will have significant fluctuations in business across the year,” Paul says. However, regardless of the industry, all business owners should have their own formal method of recording, tracking and forecasting incomings and outgoings each month. For anyone struggling with cashflow, implementing a formal plan can get you back on track, achieve a positive cashflow every month, and avoid financial stress. Proper cashflow management can also enable you to take better advantage of business opportunities as they come up. Sydney-based tradie recently reached out to Boss Finance Australia for help. “He had great turnover for the year, but due to the nature of his business and the ebbs and flows each month – paying invoices, paying suppliers, buying materials, paying wages etc. – he was always finding himself short on cash,” says Paul. “We were able to map out his cashflow month to month so he could see where upcoming shortfalls were likely to occur and prepare accordingly. The outcome for him was significant. His stress levels are reduced and the clear picture of his incomings and outgoings has given him the ability and confidence to take on larger jobs as they come up, whereas he would have previously been reluctant.” Here are 5 key steps to adopting a simple and successful cashflow plan for your business: 1. Use a smart template to build out your plan There are plenty of expensive software solutions out there that can manage your budgeting and forecasting for you. But for a simple cashflow plan, you can download simple Excel templates for free too. Alternatively, if you’re a spreadsheet whiz, you may choose to build your own! 2.  Identify where your revenue is coming from Once you have the right template, it’s time to get started creating your business cashflow picture. Start by reviewing your business revenue. Organise your income by breaking it down into two main streams:  Recurring income (product sales or services), and  One-offs (like a government grant, loan or asset sale). It’s important to know exactly where your money is coming from each month – and it might surprise you (or not!) to know that for most business owners, this is the first time they’re seeing the full picture since starting their business. 3.  Identify where your money is going Now it’s time to review your historical costs. Enter your monthly expenses into your Cashflow Plan. If you’re using the template referred to in Step 1, it offers you a list of standard outgoings including insurance, stock purchases, office supplies, loan repayments etc. The template will then automatically subtract your expenses from your income. 4.  Review Now that you’ve created a clear picture of your monthly income and expenses, it’s clear to see where your strongest and weakest months are, as well as the periods where your costs are highest. Now that you can see it clearly in front of you, it’s possible to plan ahead. If this is the first time you’ve undertaken this kind of analysis, we recommend you ask your accountant to provide you with some figures on comparable businesses in your industry so you can compare typical costs and revenues. Consider how your cashflow compares to your financial goals – are you on track, or do you need to think about a different approach? Are you in serious cashflow trouble? If you can see that more cash is leaving your business than is coming in each month, consider whether additional working capital via a loan or line of credit could help. Other factors to consider include an audit of your business activities to identify areas that are costing you more time and resources than they are worth. Most businesses have opportunities to cut down costs and increase revenue by removing redundant practices and focusing in on their areas of greatest profitability. 5.  Update and monitor regularly Make sure you stay on top of your budget by updating your plan on a monthly basis or as your circumstances change – SME is an ever-changing environment! The time you devote to implementing sustainable cashflow management practices into your business will pay dividends. Why not get started now!  

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A Beginners Guide to Cash Flow Statements

What do you focus on when you look at cash in your business? Do you know your business's cash cycle?  Did you know to understand your cash better you can use a cash flow statement? You can access them from your accounting software program or ask your accountant! Here are some important professional tips to improve your cash position using cash flow statements!   Cash is king of the business world, right? So why do accountants talk about profit all the time? This may be due to income tax calculations being based on profit. But as a business owner, you need not forget about the most important resource- CASH! Therefore today, I’m going to highlight an awesome report to add to your financial reporting repertoire. And it is actually one of the most straight-forward and understandable reports for business owners. Warren Buffet, one of the world’s greatest investors also focuses on cash flow. He knows that without enough cash, even a profitable business is not on solid ground (and therefore not worth investing in from his perspective.) Also, research shows that business cash flow tends to move in roughly 3-month cycles depending on payment cycles based on quarterly tax payments and superannuation requirements (in Australia). So it’s time to check out what you can do to better understand cash flow and your cash cycle in your business.   How Do You Know if you’re in a Good Cash Position? Many businesses check their bank balance regularly, but sometimes, that’s just not enough. Let me explain the starting point of knowing if you’re business is keeping track of its cash well enough for your business not only survive but thrive!   Why Focus on Cash and Cash Flow Reports?  The importance of cash in a business is quite evident, without available cash you have limited choices around what you can sell, how you can advertise, who you can hire or even what you can spend money on. But the benefits of understanding your cash flow statement or even where to find it are not as clear. So, I’m here to explain. Cash flow statements are generally produced by accounting software programs. They are essentially the summary of cash coming in and going out in your business broken into different categories. These categories are operations, financing and investing. And unlike a profit and loss statement or income statement, you don’t need to know an amazing amount of accounting or accrual rules and regulations to produce it. Accrual accounting (generally used in the profit and loss statement) is all about recording the transactions in your business books when the transaction occurs, not when the cash is received. So, there is a TIMING difference that can make or break your business. For example, you may sign a contract and record a large sale one month, but not actually receive the cash till 90 days later when payment is due. If you are not accounting for this timing difference, then you may have insufficient cash to pay bills in the interim. This is a vital reason why cash flow needs to be a focus in your business.   LET’S BREAK DOWN THE CASH FLOW STATEMENT INTO BITE-SIZE CHUNKS!   EXAMPLE CASH FLOW STATEMENT   Why is cash broken down into three categories? Because it shows where the business is spending and generating its money and on what types of activities.   Cash Flow from Operations This is money that has been received and spent in core business activities. This means that the impact of any non-cash items such as accounts receivable or depreciation are excluded. This figure will show you if the main operational activities are creating positive or negative cash flow. Why is this category so important? In some instances, when non-cash items are removed the normal operations of a business can be very cash consuming or it indicates a delay in receiving money owed to you. If there is negative cash flow here, it means that the core business activities during that period cost more than the money that was brought in. It’s difficult to comment on the health of the business by looking at only one period or timeframe. Consider the example above, the green circle is showing that the net cash flow from operating activities in the more current period is LESS than the period before. This could be due to a large invoice from a customer that is overdue or that a large bill from a supplier was just paid. If net cash flow from operating activities is regularly negative, then this is a red flag to investigate accounts payable and accounts receivable policies further.   Cash Flow from Investing Cash spent on property, plant and equipment is recorded here. There may be a machinery or vehicles purchased or equipment sold. Why is this important? This section shows you that if there was a large cash decrease overall it may be from investing in better machinery or equipment. And this does not necessarily indicate any issues with a business. It actually indicates there may be an investment in the future efficiencies and growth.   Cash Flow from Financing Loan repayments, money invested or withdrawn from the business owner and proceeds from loans are captured here. In the example above, check out the difference from one year to the next. There is a large difference in going from $40k withdrawn to $70k. In this instance, the owner has taken a larger amount of cash from the business (not necessarily a bad thing, hey?) But it is important to understand what the change is. If there was a large increase in cash here, you may find that there has been a loan granted to the business. This is a good injection of cash but may indicate more money going out of the business as that loan is repaid.   Pro-tips to improve your cash position! Use the cash flow report to assess the financial health of your business on a monthly basis. It’s easy to read and provides immeasurable clarity of your cash position.   Tip 1- If most of your cash inflow is from investing or financing activities, something is not quite right. Most of your cash inflow over numerous periods should be from your core operational activities. Refer back to the green circle in the example. Tip 2- Financing activities are important for business growth, but they shouldn’t exceed cash flow from operations. What I mean by this is, when you look at repaying loans or drawing funds as the business owner it should always be compared to the net cash inflow from operations. Tip 3-  Remember it is important to track your sales revenue, but it is just as important to track your cash held by the business. Without cash, you cannot pay bills!   Cash flow statements truly are one of the most useful tools for your financial toolkit! Invest some time today checking yours out and reap the benefits for years to come.

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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. 

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Cash Flow: The Oxygen of Business

We’ve all seen enough movies to know how to conserve oxygen if we’re stuck in a lift. Don’t speak too much, don’t shout and definitely don’t light a fire! However, there are many Australian businesses who soon find it hard to breathe because they are doing precisely all of those things. Often it is done completely unwittingly. Not being in tune with cash flow is akin to lighting a fire in a confined space with no idea when or if fresh air will be coming in. Whilst high sales figures look great they can often paper over some serious cracks. What are seemingly minor cosmetic issues can quickly become major structural problems that 3 in 5 small businesses cannot overcome.  Almost 97 percent of all Australian businesses are SMEs and according to the Australian Bureau of Statistics, more than 60 percent of small businesses cease operating within their first three years. Further research from the Australian Securities and Investments Commission (ASIC) shows that half do not survive their fourth year. Cash flow is vitally important to all businesses and there are plenty of large businesses that have fallen foul because they’ve failed to monitor and report theirs adequately. Pie Face, Quicksilver, Homeart, Wendy’s and Australia’s oldest chocolatier, Ernest Hillier are just a few of the headline failures that should serve as warning and lesson to business of all sizes that bankruptcy and insolvency can often be avoided with good cash flow management. Get reporting Not all businesses fail because of poor cash flow management but nearly all businesses with bad cash flow fail. Surveyed business owners cited poor strategic management, inadequate cash flow, and poor record keeping as the primary causes for their failure. The message is clear: if poor management doesn’t get you then cash flow will. Cheap credit in recent years hasn’t helped business owners maintain constant cash flow vigilance with many overlooking their underlying cash flow performance in favour of traditional profit & loss and balance sheets. To an extent this is expected as many Australian businesses are not required to formally report cash flow, however what businesses should do and what they are required to do should not be conflated. It is up to business to go beyond the minimum effort in the mundane administrative tasks that are often undervalued until it is too late. Business can protect itself by building cash flow into their monthly or quarterly management reporting packages to keep track of cash during any given period. This information is critical in anticipating and planning for those difficult times when outflow exceeds inflow. Getting caught short on bills and supplier payments is stressful enough but Murphy’s Law says that is precisely the time when customers will miss payments or cancel orders. Keep a Cushion For this reason it is recommended that businesses maintain a cushion of at least two months’ overheads to cope with any unexpected changes in predictions. Highly profitable companies go bust too because their capital is tied up in assets. This was never more apparent than during the 2008 financial crisis where the companies that fared worst were those with little to no working capital. Some businesses hubristically think their customers will never pay late, suppliers will never let them down; that they’ll never have to pay late so won’t ever get penalised, their equipment is so well-maintained it will never fail, sales will never slow and human error will never cost them a contract. These are the companies least prepared for the worst and according to Murphy’s Law the ones most likely to have havoc wreaked upon them. The best prepared survive the longest and have a cash flow cushion. With all the sophisticated data warehousing and reporting that is available these days there is no excuse for business not to be closely watching their cash. Those that do not are leaving themselves wide open. There’s an old business saying ‘revenue is vanity, cash flow is sanity’. Cash flow is one of the most challenging elements of commerce but those businesses alert to inflow and outflow fluctuations and reporting on their cash flow are the ones best geared for future success.

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Cash is King! 7 Tips for cashflow management

For any business, survival depends on continued positive cashflow. In difficult economic times the sooner the cash is in the door the better. Here are seven (7) tips for managing cashflow: 1. Build a Cash Flow plan. By doing so, you will know when your peak demands for cash will be thereby allowing you to manage more effectively. If you can demonstrate to your bank that you understand your business and its flows the greater the confidence they will have in your ability to repay any financing they may provide. Your accountant can do this and the investment will more than pay for itself. 2. Understand Variable Costs vs. Fixed Costs. Too many businesses do not really understand this. It is important as a business can defer or eliminate variable costs without financial penalty. For example Rent despite generally being paid monthly is a fixed cost. Whilst marketing is a variable costs. Sometimes you have a choice of paying on a monthly basis or on an annual basis which may provide a discount. By referring to your cash flow plan you can determine if it is better to pay up front and receive the discount or pay on a monthly basis which would allow you to turn the tap off when you like. 3. Use Suppliers terms. If you don’t have to pay a bill to the 30th of the month then don’t. However do pay it promptly when due. Just remember you are a supplier to your customers and you would not appreciate them not paying so give your suppliers the same courtesy. 4. Don’t become your customer’s banker. Similarly resist the temptation to have your customers dictate payment terms. There is a growing trend amongst multi-nationals to extend their payment terms out to 90 days. You must determine is the business worth it. Can you afford to provide credit for 90 days – most small businesses can’t but your Cash Flow plan will tell you. So when you get a new client be upfront about your payment terms. 5. Chase debts early. While most of us hate ringing up to chase an unpaid invoice, the sooner you make contact with your customer after the bill has passed its due date the more likely that it will not turn into a bad debt. 6. Manage Inventory levels. If your business has inventory then it is extremely important that you manage the levels. Don’t buy bulk quantities to obtain a discount if it will be difficult to off-load. This is especially important for business where currency of stock is important (e.g.: food outlets, fashion retailers, etc.) 7. Plan and manage your tax obligations We also recommend to clients that to ensure there is sufficient cash to meet Tax, GST and PAYG liabilities which are often incurred well before there due and payable that they open a high interest online bank account and transfer the cash to it when they calculate their liability. So if you have a weekly payroll then transfer the PAYG tax each week, net GST receipts each month and a third of your quarterly tax instalments each month will ensure that you have the cash to meet your obligation and don’t fall foul of the tax office. Finally, we cannot emphasise the importance of cash flow management as it will enable your business to survive in tough times and grow profitably. Your Accountant has the professional skills to assist in this management.

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DO NOT Take Staff Super For Your Cashflow this Christmas

Christmas time is right around the corner, and for businesses, especially small ones, it means a lot of financial matters need to be taken care of. Dealing with those cashflow issues by keeping super entitlements of your employees is not the best option for you.  In order to avoid cashflow problems and risks related to employee super, we're giving you practical tips to get through the holidays as best as possible. ​ Dealing with cashflow issues by not paying employees their super entitlements is becoming more of an issue in Australia, especially among SMEs. And in the lead up to Christmas, the temptation can be greater than ever. If companies undertaking this type of practice become insolvent, the affected employees may never see those entitlements. The statistics around employees being short-changed their super are startling. In fact, an Industry Super Australia analysis found that in 2013-14, almost one in three employees missed out on $5.6 billion in unpaid super contributions – or around $2025 per person. According to Super Australia, this equates to a loss of around $24,000 in super for those close to retirement. Whether it is underpayment or non-payment of super, this highlights a real concern for Australian businesses. Half of super debts relate to insolvency The ATO has previously indicated that about 50% of superannuation debts it deals with relate to insolvency. Australian Securities and Investment Commission data indicates non-payment of super is more common in: accommodation and food services, construction, business and personal services, retail trade, and transport industries. The practice of using employees’ super to deal with cash-flow problems can arise for a number of reasons, such as debtors failing to pay on time. When this happens, super contributions are often turned to as a way to cover shortfalls. There are, of course, penalties for not paying super obligations. Minimum Super Guarantee Contributions must be paid to an employee’s nominated fund by the quarterly due date. A failure to do this comes with penalties, which includes a 10% interest charge on the outstanding amount, as well as an inability to deduct this expense for tax purposes. In addition, directors can be held personally liable for unpaid Super. The ATO can issue a Director Penalty Notice to directors where the company has failed to pay its super obligations. Further, if companies fail to report its super obligations, they could find themselves automatically personally liable without recourse. Employees are being short changed However, if an employer becomes insolvent and has not paid its super entitlements then it becomes even more of an issue for employees. When a business collapses, employee entitlements are paid before unsecured creditors, which means that employees get paid: their wages, super, annual leave entitlements and redundancy entitlements before anyone else, other than those that may hold security over assets. But if there isn’t any money available, employees don’t receive anything unless they are eligible for the Fair Entitlements Guarantee (FEG), provided by the Federal Government, which protects employee entitlements. However, it does not protect Superannuation Guarantee entitlements. We’ve come across a large number of companies in our insolvency work that “borrow” their staff’s super to bolster cash flow. The issue of companies, particularly SMEs, using their employees’ unpaid superannuation to manage cash-flow shortfall is a major issue in Australia – and employees need to be more vigilant. Running a small business can be tough, especially in the lead up to Christmas when cash flow is tight. But there are smart ways to free up cash and remove stress, without dipping into employee super. After all, it could cost you a lot more in the long run. 5 smart ways to address cashflow woes: 1. Think long term As we quickly approach 2018, there are a few things you should do: revisit your business plans, budgets and long-term strategy. If your business has debt: consider a review of your financing needs, determine the amount of debt you need and the amount needed to have it in place. There may be a better deal/structure if you ask your financier. 2. Resolve late payments Overdue payments are a huge burden on small business cash flow. Make a note of clients who are sitting on outstanding invoices and deal with late payers so you can get that cash in your bank account before the holidays. Consider asking customers for part payment upfront, shortening payment terms or offering incentives for early payments. 3. Don’t hold onto excess stock If you are holding onto excess stock, consider what you need to get rid of. Avoid paying interest on stale inventory or hoarding last season’s stock by selling it at a discounted price to get it out of the door. 4. Develop a cash flow strategy Cashflow management is key to running a successful business, to ensuring you can repay debt, and plan for growth. Start monitoring for operating expenses, overheads, stock levels, debt collections, and profit. 5. Ask for help sooner rather than later The worst thing you can do is put your head in the sand and pretend everything is fine. Remember to ask for help before it’s too late by talking to your creditors and/or professional adviser like your accountant (or insolvency/turnaround practitioner).

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High profits & about to crash?

High Profits & About to Crash? A relevant question for SME Management. “How important is profit?” this question in one form or another is one of the most common questions we receive from new SME owners or potential start-ups and surprisingly it’s not a simple one to answer. Some time ago I sat down for a chat with a highly intelligent friend who had recently joined the board of a mid-sized family SME. “I just don’t get it” she said “everyone tells me the business is booming, sales are up, profits are up yet from what I read the company is broke”. My friend had sat down with the half year results and looked at the first two quarters performance against budget. Revenues were up by around 35%, Gross Margin was tracking, as a percentage, around 5% better than budget and operating expenses were around 11% lower than budget leaving a very healthy EBIT compared to budget and management applauding themselves all round. Where is the problem? I hear you ask. Cash or rather the lack of it was the problem. As revenues and revenue projections grew the funds allocated to the raw materials and finished goods needed to service such growth had increased exponentially as had the debtor’s ledger. Yes the SME was producing more at lower cost and selling every item produced at a profit but amongst the excitement no one had calculated the impact on future cash flows. If you achieve an EBIT of 20% (which is on the generous side) it means you have to outlay costs, in advance, of at least $0.80c in every dollar of anticipated revenue. You may offset this to some extent by negotiating an extension to trading terms with your creditors but that is a very slippery slope and best avoided. If you sell your product to a major retail chain, they will look to pay you in 60 days from the end of the month in which you invoice them. So you could easily wait 60 to 90 days for payment. For every $10 of widgets you sell them each month your cost is $8 and if you carry that and the subsequent monthly sales until you are paid, you are out of pocket by $24 before you receive a cent. On top of which you have had to lift your finished goods to 60 days stock to meet varying demand and raw materials by 45 days so you are roughly $50 out of pocket as you wait for the $10 to be paid of which you retain $2 profit or EBIT. Yes you are still profitable but your short term cash burn is exceeding income and without a rethink your fast growing, profitable enterprise is going to crash. My friend could see where the company was heading whilst the sales manager was elated by high revenues, the production manager proud of the COGS and the operations manager satisfied by the low level of OPEX.  In all business management not just SME’s good cash flow management and budgeting is essential. There were several funding options available to secure this company’s future once the threat was identified. But within 60 days the company may have been in turmoil and no funder wants to lend into a panic. So in answer to the question; profit is very important but it is just one of what I call “The Four Pillars of Business”: Revenue, Cost, Profit and Cash; and always remember that whilst the first three are very important CASH IS KING.

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