It’s been well documented that effective cash flow strategies are the lifeline of any business and whilst the term “unprecedented times” has now become a part of our daily vernacular, the uncertainty over this pandemic has no doubt caused stress to small business owners across Australia.
We wrote about “Surviving Uncertain Times” here, but we wanted to break it down further and examine cash flow strategies for your business that are agile and relevant to the COVID-19 crisis and beyond.
Forecast your cash flow
To effectively manage cash flow, you need to understand each area of the business where money is being received, spent and consequent timing of these transactions. Forecasting your cash relies on good accounting practices, such as regular bookkeeping to help you track your receipts and bills against your budget. It’s also a good idea to leverage cloud accounting software where you can also utilise forecasting tools that may help you catch gaps in the budget before they happen.
Once you understand your business’s cash flow, you can start to identify ways to improve it. It is recommended you focus on a short-term cash flow contingency plan. Having a long-term plan is ideal, but in this environment, things are changing daily and a short-term vision means you’re able to focus your efforts on the present situation and make decisions efficiently. This short-term cash flow forecast ensures you understand what your outgoings will be and allows you to freeze any non-essential expenses.
Plan for the worst-case scenario
It is imperative that while managing your cash forecasts, you are realistic with your assumptions. While it is important to factor in expected growth, it is equally as important to understand the impacts on your business of a downturn. We do not want to add to the negativity, but we think there is a lot to be said about being well prepared.
This means you should find inefficiencies which are impacting your cash flow and pare down your growth expectations. This involves having an honest look at your overheads and ensuring that all money spent is necessary. This could also mean managing the volume of business, turning down work and buying less stock at certain times to be conservative. This may look different for every business, but the key is to anticipate and plan for a worst-case scenario.
Get paid on your terms
Long payment terms cause cash flow stress for small businesses. One of the most effective cash flow management strategies is expediating customer payments. This can range from negotiating better payment terms with your customers or asking for an upfront deposit before the work has been completed. It is time to evaluate how you communicate your payment terms to improve cash flow certainty.
In all our COVID-19 related business advice, this one rings true in all scenarios. Whether it’s physically being in the same room or virtually meeting with your finance and operations team, communication is a priority and everyone needs to work together closely – this will enable you to make decisions with input for all parties. For example, customer sentiment is essential if you want to be able to pivot your business in crucial times and feedback from your sales team is one way to measure the sentiment. Digital channels can also be used to measure this sentiment and the relevancy of your product – for example, have your conversion rates dropped off whilst website visitors have remained steady? It could indicate a problem with messaging and relevancy in the market.
Cash flow responsibility is a team effort and the pieces of the puzzle do not solely sit with the finance team.
Unlock funds from unpaid customer invoices
Invoice finance is a flexible and quick form of business funding. This means you are speeding up your access to cash by getting money upfront for your unpaid customer invoices instead of waiting 30, 60, or even 90 days. Getting paid upfront means you’ll have access to more cash for things like paying employees, operational expenses, growth opportunities and more. There are some common myths that surround invoice finance, which we wrote about here, but fast access to your accounts receivables can make a big difference to your business success and could change your cash flow position.
To understand how Timelio can assist your cash flow strategy this financial year feel free to call us on 1300 38 63 63 or email us to chat to one of our experts.