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Calming your cash flow

Does your cash flow swing from a gush to a trickle? In tough times, managing the peaks and troughs of your cash flow can transform your business and your life and it’s not as hard as you think.

Business coach Pauline Bright knows the biggest benefit to sorting out your cash flow. “Well, you can sleep at night – that always helps,” she said.

Joking aside, Ms Bright said most business owners understood the stress caused by waiting for invoices to be paid when they had obligations to meet.

Many good business owners have come unstuck due to being caught short by an unexpected cash flow squeeze.

But more common than outright failure, and arguably more heartbreaking was the business owner stuck in a constant grind of just scraping by. This vicious cycle prevented their business from growing and caused constant stress.

“You know the tragedy of it? Most of them just struggle along and they don’t even know that they’re struggling along – what’s happening is they’re dipping into their personal finances to support their business,” Ms Bright said.

It should be the other way around.

Ms Bright’s philosophy was simple – your business should pay you more than an ordinary job. “You take all the risk being a business owner. There should be rewards as well,” she said.

There were three basic steps Ms Bright followed to help small business clients take charge of their finances before working to maximise their cash flow.

  • Draw up a personal budget to work out how much the business needs to pay you to provide the lifestyle desired. Factor in things such as family holidays. “Then you work it back quarter by quarter; month by month and work out is that reasonable? Is that doable?” she said.
  • Understand your financials and read the reports monthly. “When you understand what’s happening with the money, you can control the direction of your business and you’ve got way more chances to grow,” she said.
  • Draw up a cash flow budget to project incomings and outgoings. “People don’t like doing budgets, but once you’ve done it the first time the hardest work is over. The rest is sticking to it; comparing your actuals to your budget on a monthly basis and adjusting it when things change,” she said.

Once owners had a handle on these basics, they could begin implementing efficiencies to generate better returns. Stabilising cash flows also allowed SME operators to shift to actively growing rather than just surviving. Ms Bright’s tips for optimising cash flow were:

Streamline stock: Excess stock costs you money. Create buzz with your marketing and pre-sell products and services where possible. Don’t buy stock unless you know it is going to sell.

Invoices: Mobile payment technology has made cash on delivery achievable for almost all businesses. This was particularly convenient for trades and other mobile service providers. Try to make COD, or even pre-payments your goal. Tradespeople in particular often wasted time emailing invoices days or weeks after a job was completed. This created unnecessary paperwork and significantly slowed cash flow.

Max out margins: Review your profit margins and promote high-profit products or services. It is an easy way to grow profits without requiring a jump in sales numbers.

Keep the price right: Review your pricing to ensure it is tracking with any cost increases and don’t get involved in price wars – no one wins that game. If you have a sale, make it short and sharp. Target prospects that fit your customer demographic to maximise the chances of repeat business.

Quote quickly and return calls: Deliver ASAP and follow-up within 24 hours. Likewise, follow-up all sales calls. Never leave a potential sale hanging. If people have sought a business out, the chances of closing a sale are high.

Short term gains: Review and shorten your terms if possible and stick to them. Follow-up the day after an unpaid invoice is due and be prepared to take payment over the phone.

Marketing pays off: Even in tight times, never stop marketing. If advertising is too expensive, businesses should leverage business networks and social media.

Target the top end: Add a premium service or product to your range. Twenty percent of your customers may be looking for something extra. Look for opportunities to add value: If a business is service-based, owners should look for products (books, gadgets or tools) that complement the services offered. If the business is product-based, owners could look for services that would add value to that product. For example, a sewing machine store could offer dressmaking or quilting lessons.

Avoid discounts: Train sales staff not to use discounts to close a sale. It erodes your margins. Instead, business owners could offer low-cost rewards, such as additional training.

Make tough calls: Be prepared to prune your business in difficult times – only keep what sells well and people who work well.

Focus on conversions: Track prospects through to sales and look at why some people are not buying. Boosting conversion rates can transform businesses.

Not all business loans are created equal

Having the right type of small business loan in place can have a big impact on cash flow. Different borrowing needs require different financial products. For example, invoice finance can help build reliability into your cash flow, while separate financial products are designed to finance equipment purchases with minimal impact on working capital.

Get in touch with McKinley Plowman today to ensure your loans are fit for the purpose intended to ease the stress of cash flow management. Click here to send an enquiry.

written by:

Paul has over 35 years of experience in finding financial solutions for homebuyers, investors and business owners.
A licensed broker and member of the Mortgage & Finance Association of Australia (MFAA), Paul’s extensive experience includes 20 years with a major bank, seven of which were as commercial banking manager.
Paul delivers a holistic financial solutions to achieve the best possible outcome for a client’s personal or commercial lending needs. Paul also provides a comprehensive financial consultancy to business owners on commercial, equipment and invoice finance.

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