Most Small Businesses will experience ‘cashflow challenges’ those times when the sea of money seems to be adrift, with more money going out of the Business than there is cash coming in!
If this sounds familiar you are not alone with ‘92% of Australian small Businesses experiencing negative cashflow with owners struggling to pay essential costs such as rent and wages’ (Insight report July 2022). This is financial pressure small Business doesn’t need!
The good news is that there are ways to help stay afloat! With foresight and adopting sound financial management strategies some common mistakes can be avoided and obstacles overcome.
Here are some common challenges with our Top Tips to help you overcome them!
- Profit margins: Particularly relevant in the current inflationary spiraling pricing cycle, it’s critical to have true-cost pricing. Don’t let your profit margins be eaten away by increasing costs.
Tip: Regularly check the cost of goods and products and determine realistic profit margins by setting prices not too low or too high. Pricing points are needed to keep you competitive and in the red. Offer value for money and your customers will keep coming back!
- Overdue payments: monies due to you: Slow and late payments pose the greatest risk to small Business. Cash in keeps the money flow flowing, without it the cash river dries up!
Tip: Have an efficient invoicing and billing system in place, one that generates accounts at point of sale and offers various payment methods. Electronic systems can also monitor receipts and overdue accounts allowing you to better manage and avoid late payments. Keep on top of your debtors ledger, remember you are running a Business.
- Personal and Business financial matters: Mixing money, personal and Company transactions is fraught with danger, including relationship friction and can easily lead to ‘robbing Peter to pay Paul’!
Tip: Keep separate systems and records and avoid ‘borrowing’ from either. Makes it simpler for all concerned including for providing true and accurate Business financial reports, taxes and audits.
- High overheads: How much does it cost to run your Business? That is those costs not directly related to selling your goods, products or services. Utilities, rent and office equipment to name a few examples.
Tip: Undertake an audit to establish what you have, what is needed, what works and if there are any cost-saving measures that can be introduced. Paperless systems, utility gas & electric efficiencies can be investigated without compromising Business operations. Investigate vacant, underused space (floor or outdoor). Can it be leased out to generate revenue!
- Bad debts: These debts occur when clients or customers don’t pay their due accounts, going beyond the terms of credit.
Tip: Help avoid bad debts by reviewing the credit rating of your clients before offering extended credit. Work with new clients to establish ratings and performance before entering credit terms. Introduce a Debt Management strategy to better monitor accounts and take necessary action as required.
- Excess Stock: How often do you review your stores? Are you holding too much, including old, discontinued or slow selling items.
Tip: Take stock. Consider offering discounts for bulk orders, or use online promotions, such as auctions to quit stock. Monitor sales and undertake regular inventory stock-takes to keep on top of stores.
7. Cashflow Management: Operating on a wing and a prayer will not keep your Business in a healthy state. Guessing, wishing and hoping are not effective.
Tip: Set up a Cash Management system that includes budgeting and forecasting, financial planning and ideally automated payment and processing options. These measures can help small Business foresee future obstacles by predicting likely cashflow crunch periods. This allows Business to build up cash buffers in advance.
8. Feel like your Business is sinking: Running a Business, getting on top of financial matters can wear you down and at times be overwhelming.
Tip: Seek professional advice. Contact Blackburn Accounting, we are experienced and ready to help you meet the challenges and overcome your Cashflow obstacles!
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