Cash flow is easy to understand – it refers to the net amount of cash coming into and going out of your business over a specific period. Yet it is one of business owners’ biggest problems, given the current economic climate.
Why is Cash Flow Important for a Small Business?
Cash flow is crucial as it serves as an indicator of a business’s efficiency, liquidity, and financial stability. In short, it is a measure of your business’s health. By monitoring your cash flow, you can both fulfil your current financial responsibilities and make plans for the future.
Here are some ways you can manage your cash flow:
7 Ways to increase the inflow of Cash for your Small Business
Increase your prices by offering better value, and focus on your lucrative revenue sources.
Increase the volume of goods or types of services you offer to build your customer base. Explore new markets and diversify to increase your revenue stream.
Not all business functions require full-time staff. Assess your company requirements and pinpoint areas where outsourcing will be more cost-effective. Positions like marketing, bookkeeping, payroll, and human resources can all be outsourced.
Estimate what you will need to take from the business for operations and what you expect to receive over a normal financial year. A projection will give you a clearer idea of potential surpluses or shortages and help you decide how to spend any available cash.
Send Invoices Frequently, Promptly, and Follow-up
The quicker you send invoices, the faster you can expect to be paid. Review your payment terms and make sure you can detect past-due payments quickly. Ensure that you have procedures in place to follow up regularly with clients. Most modern accounting software has built-in functions that send automatic payment reminders for outstanding accounts.
Keep Up-to-Date With Your Tax Obligations
Forecast your income tax, GST payments and superannuation obligations. Aim to make all payments and lodgements on time.
Sell Assets That You No Longer Use
Review all the company’s equipment, buildings, and real estate. Sell any assets that no longer help to generate revenue or streamline your company’s operations to increase efficiency elsewhere.
How Can You Reduce Your Cash Outflow?
Lower your Expenses
See where you can reduce overhead costs and cut back on discretionary spending.
Improve Inventory Management
Identify slow-moving stock. Negotiate better terms with suppliers regarding prices and payment.
Efficient Human Resources
Adjust your personnel levels to what the work demands. Increase productivity and strive for low turnovers.
How Perth Tax People Can Help?
Managing cash flow is a critical issue for all small business owners. Perth Tax People can help calculate your cash position and provide strategies to preserve and stretch your cash flow.