Improve cashflow
By Peter Switzer

Ask any business owner what keeps them awake at night and chances are the answer you’ll get, especially during times like these, is cash flow.

Ensuring cash flow is under control is an important step in business success. In business, cash is king! Any business keen on avoiding an untimely end must have good cash flow.

You need to understand the impact of a cash flow gap (that is, the time between cash going out and cash coming in).  Your business can be profitable, but if you don’t have enough cash coming in regularly to meet your expenses then you will quickly go out of business. Nearly every business experiences this: the money flows out before it starts to flow in.

Poor cash flow comes from many things. Imagine, for example, you go through three months where you pay all your bills promptly but no one pays you. Those bills include such things as car registration and a major equipment purchase.

This is the anatomy of a cash flow problem. How are you going to pay for these, let alone pay yourself?

Generally, to avoid a cash hiccup, you have to know what is happening with operating expenses, overheads, stock levels, debt collections and your profits. By doing a cash flow projection, you can make sure that each month there will be sufficient funds in your business to meet all your outgoings. Failure to do a cash flow projection is a common cause of business collapse.

Where do you start?
The starting point is to predict your sales and expenses. This is much harder for a new business with no history for guidance. Experts suggest you do a few cash and profit projections ranging from ‘blue sky’ ones to projections from hell, where everything goes wrong, and then sensible, average ones.

When you begin your business, odds are you’ll be wrong with your projections, but if you monitor these figures month-by-month, you can make some running repairs. This exercise is crystal ball stuff but people who do it regularly become good at knowing their business, including their customers and debtors, and they’re more in control.

One way to reduce the cash flow gap is give your customers easier ways to pay you on time. Offer customers a range of payment options like BPAY and credit cards. Some people don’t like the credit card option because you lose a percentage, but I say that a dollar in the bank is worth two that may not ever get there!

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