Improving the cashflow of your business is essential if you want to remain open and continue to find new customers who are willing to spend money to purchase your products and services.
Aspiring to improve the financial position of your business should always be seen as an important part of your business plan. By analysing the current financial situation of your business, you will discover ways to trim expenses, save money and create new ways to bolster your cashflow.
Tyler Bisgrove from Vault Accountants says that “some of the easiest things to do are, increase your prices! Price according to your business model and the clients you want to attract. Don’t try and be the cheapest on the market,” says Tyler Bisgrove.
“Shorten your time frames that you allow your customers to pay, and keep on top of them. Your payment terms shouldn’t be any more than 14 days maximum. Payment “on the day” is ideal, 3-7 days if you have to offer credit terms, and in some industries you do. But if you do have to offer terms, look at BNPL (Buy Now, Pay Later) options such as ZipPay or OpenPay. This means you receive your money quicker and gives the client space to pay. Just make sure you price your jobs effectively to cover these costs as some of these options can take between 6-10% of the invoice value in fees,” continued Tyler Bisgrove.
She also believes that it is important for a business owner to “speak to your creditors about pushing your lines of credit out to 30 days wherever possible. The best kind of cashflow in a business is where you get paid before you pay for your direct costs or materials. It’s a win/win for any small business,” says Tyler Bisgrove.
One of the best ways to improve the financial situation of your business is to reduce expenses. Make an effort to take a look at every area of your business and see if you can find cheaper alternatives for supplies, equipment and services. Find out if it’s possible to obtain better terms for bank accounts and insurance policies. For larger expenses, find out if you can arrange periodic or deferred payments to keep more cash available for you.
It is also a good idea to sell any unused or unwanted assets. For example; if your business owns items that you no longer need that are just taking up space it would be wise to get rid of them as selling these assets will give you instant cash. If you are also paying for storage, you also save money on this expense. If you have a large number of such items, consider putting them up for auction. There are auction houses that specialize in business items. Or sell items yourself online with eBay, Gumtree or another online marketplace.
“Having a budget and a cashflow forecast can be really essential here. If you’ve budgeted for $100 spend on office paper, but your actuals say you’ve spent over $1000 then this something that we need to look at. It’s about running your business lean and buying things you need, rather than the things you want or feel you should have. There’s no point in budgeting, and spending $1000 per month on stationery if it’s just stockpiling in the storeroom. That’s just dead money. You’d be much better off only buying what you need, when you need it. Trust me, your bank account balance will thank you for it,” says Tyler Bisgrove.
Now, more than ever, having a clear understanding of your financial position and having the ability to adapt to an ever changing economic climate is crucial if you want, need your business to succeed. For this to happen you need 3 things; –
- A good business model – a clear understanding that your business will generate more revenue than it will spend
- A good business software – you need to be able to keep your fingers on the pulse and see the financial metrics that are most meaningful to you, and be able to trust them
- A good business advisor – someone you can trust to hold your hand through the rocky patches, and still celebrate your successes through the good times
Here at Vault, we pride ourselves on being able to offer help, support and guidance through all 3 of these. We’re here when you want us, but most importantly we’re also here when you need us.