SHOP LOCAL: Cash flow is king for small business

SHOP LOCAL: Cash flow is king for small business

Local Business Matters

David Eaton – WA Small Business Commissioner

WHEN it comes to managing business finances, cash is king and key to the survival of your business.

However, this is one area of business that is often neglected.

Properly plan your cash flow and you can maintain enough working capital to operate through the quiet times.

Managing a business is not just about profit and loss, it’s also about managing your spending and being prepared for likely eventualities.

Your cash flow may be the difference between your business success and failure.

You can be profitable on paper but may be forced to close your doors because you don’t have enough cash at hand to pay your rent or electricity costs.

A good cash flow forecast will help you monitor when you have money coming in, and going out of your business.

Having a strong grasp on the financial forecast will assist you make sound business decisions and help you anticipate periods where you may experience shortages or surpluses in cash.

If you need more cash consider revising your pricing, increasing sales volumes and managing debtors.

Alternatively reduce the cash going out of your business by revising outgoing expenses, inventory and staffing levels to determine whether you can make some savings.

You may also consider refinancing your loans and selling any under-utilised assets.

Some key tips for managing cash flow:

  • Issue invoices as soon as you have supplied the goods or services. Follow up promptly on any late payments and consider offering an incentive such as a discount to encourage debtors to pay their bill early.
  • Review your business practices to identify areas where you can reduce wastage or improve efficiencies.
  • Negotiate with suppliers to extend your payment terms and reduce your expenses.
  • Grow your business by exploring new markets or investing in an effective marketing strategy to attract new customers.

Download a free cash flow template and learn more about the SBDC’s ‘Understanding Business Financials’ workshop by visiting smallbusiness.wa.gov.au or call 13 12 49 to speak to one of our experienced business advisers.