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MJ’s Top Cash Flow Management Tips

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07 / Nov / 2013

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One of the first lessons for every new business owner is that “cash is king”.  Everyone has heard the quote, but it’s not until we feel the pinch of tight coffers that we really understand the lesson.

So…we’ve felt the pain, learned the lesson and we are convinced: cash flow management is critical to our business success.  Now what can we do to make sure we keep our cash flows positive and under control?  Here are 15 tips to consider.  Not every idea will suit every business, but scroll through the list and decide which tips might help your business to keep the coffers full.

1. Run a credit check on all non-cash customers.  Sounds time consuming, but bad debts can wreak havoc with your cash flow (not to mention your profitability).  If you aren’t prepared to credit check everyone, at least do so for the bigger clients.  Check out our earlier blog for our Six Steps to Avoiding Bad Debt.

2. Look at the cash flow implications of how you are charging your clients.  Consider offering discounts to customers who pay their bills rapidly, or asking for deposits at the time of order.  If you work on a project basis and tend to invoice in large lumps, consider asking your client to switch to a retainer arrangement or billing at stages of the project.

3. Ask yourself whether your bad paying clients are really worth keeping.  It may be better tofire your client than to live with the ongoing threat to your cash flows.

4. Issue invoices as soon as work is completed and follow up immediately if payment is overdue.  If you let your customers pay slowly, chances are they will.  If you struggle to get invoices out quickly consider the Invoice2Go app.  They are going to be running a couple of workshops in Coffs Harbour on Monday 18 November and Tuesday 19 November.  Might be worth a look!

5. Make it easy for customers to pay.  Invest in technology to facilitate online or onsite payment.  PayPal and credit card payment facilities do incur fees, but this is worthwhile if it means your aren’t having to spend all your time chasing your cash.

6. Pay staff and freelancers on time – all other bills only pay when due.  If you receive an invoice with 30 day terms, don’t pay in 15 days.  Always hold onto your cash for as long as you can.

7. Get rid of outdated inventory for whatever you can get.  Money stuck in slow moving inventory is cash wasted.  Know when to cut your losses and reclaim what cash you can.

8. Update your cash flow forecast at least quarterly.  It’s hard to manage your cash if you have no idea what’s coming in or going out in the weeks and months ahead.

9. Plan for the worst and hope for the best.  When working on your cash flow projections don’t make the mistake of assuming that payments are going to always continue as they have in the past.  Consider the implications if a major customers doesn’t pay on time, or a supplier tightens their terms of trade.

10. Ensure that all expenditure is directed toward value creating activity.  As a business grows it tends to lose efficiencies.  So take time out at least every 12 months to review all revenues and expenditure to refocus your resources.

11. Set aside GST collected.  It’s easy to mistake GST collected as business money.  To avoid spending what’s not really yours, keep GST funds in a separate account.  Many banks offer this sort of bank account free as part of your business banking package.

12. Set up an interest paying business account and sweep funds into this account regularly. Even though interest rates are currently low, some interest earned is always going to be better than none.

13. Review your pricing regularly.  Do your prices still reflect an adequate return given your efforts and costs.  If not consider putting up your prices and if this makes you nervous read our article about How to Change Your Prices without Losing Your Customers.

14. Consider leasing instead of buying.  Generally leasing is more costly than buying, but this can be well justified by the cash flow benefits.  Leasing, of course, also has the advantage of being a legitimate tax deduction.

15. Get a good accountant.  Make sure you have an accountant who actively assists in cash flow review and forecasting and provides you with advice on ways to improve your cash flow.  Recent MYOB research found that SMEs whose accountant acted as an advisor were 31% more likely to see an earnings uplift in the past year.

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