The cashflow cycle is extremely crucial to any business, and the ability to stay afloat comes down to understanding your business cash flow cycles and managing this accordingly.
Most business owners see growth as the solution to a cash-flow problem. That’s why they often achieve their goal of growing the business only to find they have increased their cash-flow problems in the process.
The trick is to plan for growth and the related cash outlays in advance, so they don’t come as a surprise.
Get a sense of your business’ cash flow situation by asking the following:
1. What is my cash balance right now?
2. What do I expect my cash balance to be six months from now?
If you can’t answer these two questions, read our tips for how you can stay afloat.
Do not focus on profit, focus on cashflow
Don’t be blinded by profit margins. If your cashflow is in order, your profit will generally follow. Its better to seek out and work with reliable, quick-paying clients even if it means slimmer profit margins.
Establish payment arrangements that minimises debtor days
Every business experiences a gap between invoicing and payment. Establish direct debit as a business norm for collecting receipts. It allows a business to scale without increasing the costs required to collect the debt, while also providing a stable inflow of cash from which all payments can be made from.
Invoice quickly with clear payment terms
Some factors that influence cashflow are in a business’s own hands, including when to invoice. Establishing an efficient invoicing system with clear payment terms from the outset is important.
Set cashflow targets
Achieving a positive cash flow does not come by chance. You have to work at it. One way of controlling cashflow is by preparing and maintaining a cashflow forecast.
Download this handy cashflow forecast template from the ATO here.
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