Six Steps for Better Cashflow
Here are six simple steps to help small businesses better their cash flow.
Recently published research by American Express has found that 49 per cent of Australian small business owners find managing cash flow the most stressful part of running their business. 31 per cent reported losing sleep due to the stress of cash flow management, 21 per cent have had their physical well-being affected by cash flow tension, and 22 per cent have experienced strain on their personal relationships due to this pressing issue. 17 per cent of Australian small business owners have considered closing their small business due to cash flow challenges impacting their health and well-being.
“...49 per cent of Australian small business owners find managing cash flow the most stressful part of running their business.”
Here are six simple steps to help small businesses better their cash flow:
Keep financial records up-to-date and accurate
Cash flow management in a small business will only be as accurate as the business's accounting and reporting. While staying on top of cash flow management can be tricky, bigger business challenges can arise if you fall behind with your accounting and reporting. To help avoid that, routinely update your financial records, which can make it easier to gauge where your business stands financially at any given time.
Keep cash in reserve to reduce risks to your business
Not having access to cash when you really need it can make or break a small business. One of the most important cash flow management tips for small business owners can be to keep cash in reserve, which can provide a buffer to help you manage unexpected events that may impact your small business.
Be lenient with your customers – to a point
Your customers will appreciate leniency with their payment terms, especially when business is slow. However, you must maintain your profit margins. Be fair and direct, but never a pushover. Set the terms that first and foremost work for your business.
Seek help from a finance professional
Suppose you're not confident with numbers, or don't have the time to do it yourself. In that case, you may benefit from hiring a professional accountant to manage your business finances. If you are doing it yourself, you may consider one of the many accounting software products on the market that help simplify cash flow management for small business owners.
Segment your finances
A simple but essential cash flow management tip for small business owners is to separate personal and business bank accounts. You may even have each of them with different banks to draw a clear line between your business and personal funds. You don't want your business funds going into your personal account and vice versa.
Reduce your risk via business insurance
Forewarned is forearmed, and an essential cashflow management tip for small business owners is reducing the risks to their business via business insurance.
"Business insurance products such as Public Liability Insurance, Building & Contents Insurance, a Business Insurance Pack, and Business Interruption Insurance can help small business owners to maintain their cash reserve at a comfortable level by indemnifying you for claims or lawsuits that can be very costly when they occur," explains Jane Mason, Head of Product, Channels & Risk at business insurance comparison website BizCover.
Claims and lawsuits can be costly for small business owners. Not only can they add additional stress to running a small business, but they can also impact your cash flow and potentially reduce your business's cash reserve.