Cashflow, put simply, is the money you have coming into your business from revenue and the money you have going out for expenses. Good cashflow ensures you will always have money available to pay for expenses when they are due. The most essential part of cashflow is that you first understand your cash flow cycle like when are your high and low seasons, what are your payment terms, and when are your large expenses due.
Keeping Track Of Cash Flow
Keeping track of the cash flow going in and out of your business is extremely important. In today’s digital age we are lucky to have many accounting software products available to us such as MYOB or XERO, which can track these transactions in real time. If you prefer a manual approach, then systems such as Microsoft Excel are an effective tool. Having an accountant and financial planner may help you make the right financial decisions and are a great source of information regarding business tax deductions, business planning and financial advice.
A Few Keys Areas To Keep Track Of Are:
- Sales patterns – Are you seeing a growth in your sales? When is peak period and
- will you have enough stock or cashflow for purchases?
- Which products or services are most popular? Can we promote these more whilst removing some non-popular items from the shelves or your service offering?
- Establish which expenses are costing the most, then decide if all of these are necessary?
- Can you reduce some of these expenses whilst still maintaining excellent service and quality products?
How Can I Increase My Profitability?
For most businesses, the easiest way to improve profits is to make small changes within the business, rather than always trying to land a large client or settle a big contract. You can look at increasing profitability using the below strategies.
- Reducing payment terms to collect money faster from debtors (for example, reducing terms from 14 days to 7 days)
- Maximising government tax incentives
- Ensuring you are not paying too much for rent, electricity or office supplies
- Buy in bulk to receive larger discounts
- Small increase in prices (maybe 5 per cent)
- Refinancing any high interest loans
- Getting rid of excess stock
If you have a lot of stock or products that are going unsold, offering discounts or having a sale may help you liquidate some of these assets. This will assist with freeing up cash in the business and increasing profitability. If these products are not being sold, chances are it is costing you money to store them. Once you have freed up the cash from those sales, you may be able to re-invest the money into different stock that sells better, which may allow you to see a return on your investment a lot faster.
Ways To Access Additional Working Capital
There are a number of reasons why a business needs cash, such as purchasing additional stock, marketing campaigns, office renovations and even large one-off asset purchases. The good news is that there are several ways you can get access to extra working capital to assist with this.
Facilities commonly used to raise capital are:
- Bank overdraft facilities
- Debtor financing facility (help to reduce the stress of longer payment terms)
- Asset finance loans (finance equipment to keep cash available in the business)
- Unsecured business loans
What To Do Next
The best way forward if you are interested in better managing the cash flow within your business is to contact your accountant, financial planner, bank, or finance broker. They will help you navigate any financial challenges; help develop a strong business plan and help make accessing cash for your business that much easier.
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