As Brisbane accountants, we work with a lot of small businesses. While these organisations vary greatly in many ways, there are two traits most of them share – a genuine passion for what they do, and ongoing concerns about their cash flow.
Maintaining a healthy cash flow is particularly important for small businesses, as they often have thinner profit margins and minimal cash reserves. Poor cash flow can also inhibit growth by limiting investment in innovation and making it harder to plan future spending.
When trying to improve cash flow, a lot of businesses just focus on strengthening revenue. However, there are several other factors that should also be considered – like how that revenue is collected and what it is used for.
If you’re a small business owner looking to improve your cash flow, we recommend you:
Make it easy to pay you
Depending on the industry you are in, it’s quite possible you service a wide range of clients who have varying payment preferences. By having a variety of payment options, and clearly communicating these, you remove one of the biggest barriers to getting paid.
In addition to traditional payment methods, like cash and credit cards, you may also want to consider direct deposit / EFT, BPay, online payments (e.g. PayPal), and digital currencies (e.g. Bitcoin). Many of these options involve service fees and may require technological infrastructure, so it’s important to do your research and determine which methods suit your business.
Clearly define payment terms – and enforce them!
Setting and communicating clear payment terms not only improves your cash flow, it can also help you maintain good relationships with your customers.
As payment terms effectively represent a ‘credit’ period, shorter is usually better. That being said, when setting your terms, you should consider the size of the debt, the creditworthiness of the customer, and any legal requirements. To help minimise your out-of-pocket expenses, your customer payment terms should be shorter than the payment terms of any associated supplier.
It’s also important to monitor the progress of payments and promptly follow up any customers that are late. While this may require some awkward conversations, it is often the only way to make sure you get paid.
Involve your team
Two (or more) heads are always better than one, so don’t be afraid to ask your team members for their ideas – and support – for improving your cash flow. Often, they are closer to the detail of your day-to-day operations and can spot opportunities you may have missed.
Getting the team involved can also increase their sense of ownership of your business’ success.
By embracing digital, you can reduce (potentially to zero) the waste and cost associated with paper-based working. If implemented correctly, cloud computing solutions can also help increase your business’ productivity and efficiency, and improve visibility of your cash flow. If you are looking for a Brisbane accountant, or would like to discuss ways to better manage your cashflow, MT Corporate Advisory is here to help.