The concept of cash flow should first be properly understood for a complete grasp of how to manage and sustain it. The concept of cash flow is fairly simple: your business uses cash to create goods or services for your customers, and you collect the cash back (of course with an increase for profit) from those customers. The cycle of cash flowing in and out is tracked using a Cash Flow Statement. Managing your cash flow is the key to sustainable growth over the long term, so here are a few tips that will help you.
Tip 1 – Be prompt with your invoice
Many small businesses have a regular billing routine such as invoicing clients and/or customers at the end of the month – leaving money that could be sitting in their bank accounts (improving their cash flow) in someone else’s pockets! Instead of waiting to invoice, bill right away when the job is completed. If your business involves billing for hours of time, invoice twice monthly instead of once to get some of your money coming in sooner.
Another way to go about this is to get the customer to pay for your projects. How? Well, all you have to do is request for down payments from your clients or break the whole payment into parts for some to be paid before work commences. For example, break payments into three parts with each part to be paid before, during and after the project.
Tip 2 – Negotiate with your suppliers
It is common business practice for suppliers to allow businesses some time for payment of goods supplied. This cost can be negotiated to spread through a span of time that will allow the business owner to spend zero cost on such deliveries. The trick is to be able to let the span of time allowed cross into the expected time of payment by customers. For example, your business makes bread but the supplier of the flour allows you a period of a week to pay for goods supplied. If it takes 3 days to completely utilize all of the flour and 3 days to completely distribute and receive payment then at the end of the week all costs of flour would have been paid for by the customers. Hence zero flour cost for your business allowing available liquid money to go into something else.
Tip 3 – Let debts work for you and not against you
No one likes the idea of debt, but borrowing money is a normal part of doing business. Unlike in personal savings, businesses often need to borrow in order to take advantage of an opportunity and grow.
Borrowing is a risk, but if you do your due diligence and research your financial situation properly, you will be confident that your return on investment will cover the debt and more. And if your plan goes wrong, you’ll be prepared to compensate.
Tip 4 – Do not shy away from seeking professional advice.
Professionals like tax agents, business brokers, business accountants and financial planners are all present in Melbourne and are all expected to be up to date with the rules and regulations in the business field. Seeking advice from these guys would help you avoid costly mistakes that would see the cash flow mostly outward without any returns.
For a highly qualified business accountant, financial advisor or tax accountant in Melbourne, look nowhere other than Medvisor Consultants. Our adaptability and flexibility help us come up with tailor-made solutions for your businesses.