Don't get caught in a cash flow trap

If you run a business, or you’re thinking of starting one, one of the first lessons you learn as a business owner is that cash is king. It’s the lifeblood of every business. Without it, it’s impossible to meet the obligations of the business, plan for the future or gain a real picture of the health of the enterprise.

But getting a handle on the real cash position of your business can be tricky. Because even if you have revenue coming in, it’s easy to fall into a cash flow bind, with a sizeable gap between the time you need to pay for outgoings and the time cash comes into the business. But with a little planning and forethought, you can easily avoid a cash flow trap. Here are our tips for avoiding a cash flow death spiral.

Make sure your business is viable

One of the biggest traps for start-ups is knowing whether the business idea is viable. So get feedback on your idea and start off small before you spend thousands of dollars on an expensive website and branding.

Use free resources to reduce your administration costs

There’s a range of free resources that cater specifically for new business start-ups or an established business. For instance, you can visit www.business.gov.au for free business plan templates or you can visit the Australian Bureau of Statistics’ website to get data and insights on current trends in your industry. There are also cost-effective technology resources available to you, like free web mail from Gmail and low-cost data storage with providers such as Dropbox – all designed to help keep your costs down.

Make sure your price is right

It can be tempting to undercut the market by pricing products or services at low levels. But this can reduce your margins and mean you end up in a situation where your costs are higher than your earnings. So price your products/services appropriately so you’re covering your overheads, earning a profit while also ensuring that your price is within the range of what your customers expect.

Raising an invoice doesn’t equal a sale

Sending out an invoice doesn’t mean you’ve made any money. You haven’t made the sale until you have banked the money. Right from the start, put in place great debtor management systems to ensure cash comes into the business as fast as possible.

Don’t spend your taxes

Never forget you need to put money aside to pay your goods and services tax (GST), pay-as-you-go (PAYG) withholding tax and superannuation. It’s also essential to set up robust financial systems that give you a clear and timely picture about your financial position. Don’t wait until the end of the tax year to do your accounts – do them at least quarterly, if not monthly, so you know how much you have coming in and going out and whether you’re making a profit.

Don’t be shy to ask for help

Make sure you work with talented, experienced financial experts to help plan and manage your business finances. It’s also worthwhile to connect with other successful business owners you know to help sharpen your business acumen.

In fact, networking is a great way to learn from others who have been in your position. For that reason, you should identify business groups you can become part of to meet other people who are in a similar position to your own. This is also a great way of developing potential sales leads.

Sound financial and banking advice is essential whether you’re a new business start-up or an established business. So contact your financial adviser today to find out more about how we can help you ensure your cash management and longterm financial position is the best it can be.

 

photo credit: jemasmith via photopin cc