Improve your cash flow

If more money is going out of your business than coming in, then you have a negative cash flow. Sometimes this is because of external factors outside of your control, or it might be because of a sales trend or change in your operational costs.

Whatever the reason, you might be able to make adjustments to your business to help bring more money in.

Watch the following video and read on for tips to help you improve your cash flow.

Tips for improving your cash flow

Hi, I'm Jan Barned, and I'm going to share some ideas to help improve your cash flow.

Cash flow is the fuel that keeps your business running. If you run out of cash, this could be the end of your business. That's why it's so important to get it right.

Once you have cash flow under control, you'll be able to pay your bills on time, spend less time chasing customers for payment, and have the comfort of knowing that you have money in the bank to grow your business.

So, let's get started.

Tip 1: Do a cash flow forecast

My first tip is prepare a cash flow forecast for the year ahead. This is your early warning system to spot any potential issues.

Use an Excel spreadsheet like the one provided on the Business Victoria website, or accounting software to track how much cash comes in and out of the business each month.

Check your actual cash position against your projection regularly and deal promptly with any issues.

Tip 2: Speed up payments from your customers

My second tip is proactively manage payments from your customers.

Always invoice when the job is complete, because the longer it takes for you to invoice, the longer it takes for you to get paid.
And review your payment terms - they don't always have to be 30 days.
You could also make it easy to pay using several options. There are a range of apps that you can use for easy payment. And for repetitive invoices for customers, set up a direct debit from their bank account.
Where you have a special order or a large job, ask for a deposit at the start and then progress payments throughout.
Send regular reminders - most financial software packages allow you to do this automatically.
And make sure you chase up late payers. Stay in regular contact and consider offering a payment plan so you can get paid sooner.

Tip 3: Manage your expenses

The third way to improve your cash flow is to look at how you're paying your expenses.

For regular overheads, such as phone or utilities, compare your bills with other providers to ensure that you're not paying more than you need to. Victorian Energy Compare is a great tool to help make sure that you're getting the best deals.
Where you have suppliers that provide goods or services on credit, use the full payment terms. This is effectively an interest free loan.
If staff payments are eating into your cash flow, look at having flexible rosters that match the busy times.
You should also separate your business and personal bank accounts and include a separate account for compliance payments.

Tip 4: Offload excess stock and order wisely

For businesses that hold stock, work on managing your stock effectively, as holding too much can tie up cash. It's all about having just the right amount of stock to service your customers. So, if you have old stock, excess stock or stock that's not moving, then get rid of it.

Tip 5: Get help from your accountant or bookkeeper

It's not always easy to see how you can improve your cash flow, so consider getting outside help. A bookkeeper or accountant can help you look at the key areas such as your sales cycle, stock turnover and credit terms for suppliers and customers. Small Business Victoria provides access to free mentoring services through the Small Business Bus. You can even make a request for the bus to stop at your suburb or town.

To wrap up, here's three things that you can do straightaway to improve your cash flow.

First, start invoicing regularly.
Secondly, separate your bank accounts.
And lastly, start a cash flow forecast.

For more help, don't forget to talk to your accountant or go to business.vic.gov.au and search 'cash flow' for checklists, templates and tools.

Encourage customers to pay early

If you often find yourself waiting on payments from your customers, here are some strategies to encourage them to pay more quickly:

Invoice straightaway and deliver products as soon as they're ready.
Give your customers a variety of payment options, such as credit card and direct deposit.
Offer incentives like discounts for early payment, if you can afford to.
Request a deposit for special or large orders.
Regularly follow up on outstanding payments and debts.
Have processes in place that allow you to quickly resolve customer disputes.

Manage staffing and cash flow

These changes to your staffing arrangements can save money on misplaced wages:

Have flexible staffing arrangements and match the roster system to peak periods.
Delay paying sales commission until after you've received payment from the customer.
Reward staff behaviour that improves cash flow, such as reaching sales targets and reducing expenditure.

Manage your stock and suppliers

You don't want to be paying suppliers for stock you aren't moving. Try to balance the income you get from customers with the expenses you have to pay for stock:

Replace slow-moving and obsolete stock with stock that has a faster turnover.
Monitor stock levels and have processes in place to identify when you need to order new stock.
Find suppliers who'll provide you with stock only when you need it. A 'just in time' ordering system means you won't waste money paying for stock that's sitting in storage.
If your terms of trade allow you extra time to pay once goods are delivered, make full use of this time. It equates to an interest free loan.

Consider your other assets and investments

Sell unnecessary assets

Many business accumulate assets they no longer require. Selling unnecessary assets increases cash in the business and saves on costs, such as insurance and storage.

Buying assets

If you need new assets, consider leasing to 'smooth' out cash flow if appropriate.

Invest surplus cash

Use interest bearing bank accounts for any surplus cash your business may have.

Refine your marketing strategy

Enhancing your marketing activities can help bring in more money through sales.

Focus on your target market

Research your target market and make sure you know who your potential customers are.

A more focused target market results in less marketing expenditure. It can also provide your potential customers with clarity over your business and a better sense of what you're offering.

Understand what the customer wants

Familiarise yourself with what problem your product or service solves for your customer. The more you know about what the customer wants, the easier it will be to meet their needs.

Measure your marketing results

Find out where your customers are coming from. Are they hearing about you from Facebook advertising, Google searches or somewhere else?

If you know where your customers are coming from, you can stop spending money on the tools that aren't as effective.

Improve your online presence

Invest in online marketing if you haven't already. Many websites are developed with information of the business and not much else. You need to entice the customer to buy, so there needs to be some 'hook' or 'call to action' for them to contact your business.

Keep your marketing regular and your business's website and social media accounts up to date. Create a calendar for social media posts and newsletters and stick to it.If you know how to reach your customers and understand their buying habits, you can develop marketing activities to encourage repeat business.

Bundle your sales

Provide offers that move stock more quickly. For example, bundling products or services can increase the sales value of each sale.

Be responsive

Follow up on every enquiry and answer every phone call.

Research suggests that 45% of all enquiries are converted into a sale. If you're not achieving this benchmark, put processes in place to make the sale.

If you're struggling to field phone enquiries, consider these questions:

If customers are regularly asking similar questions, could you make this information easier to find on your website or social pages?
Do you have an email address or web contact form as an alternative contact method for less urgent enquiries?
Do you need to hire someone to help keep up with demand?

Forecast your cash flow

Monitor your sales trends and upcoming expenses, and prepare regular cash flow forecasts to identify potential cash flow shortages in the near future.

Once you've prepared a cash flow forecast, run 'what if' scenarios to measure how prepared your cash flow will be to certain changes in events, such as decreases in sales.

Our guide can help you learn more about cash flow forecasting: