With Christmas just a few weeks away, it’s a busy time for businesses. So before things get too hectic, now is a good time to ensure you have adequate strategies in place to manage and monitor cash flow.
Efficient cash flow and sufficient working capital is central to the survival of most small and medium-sized businesses, allowing business owners to take advantage of opportunities that come their way while providing a buffer in more challenging financial times.
Many business owners, however, have their hands full juggling staff, customers and invoices, especially at this time of year, so it can be easy to drop the ball when it comes to monitoring cash flow.
The good news is there are a number of simple strategies to ensure businesses remain flexible and prepared for potential cash pressures at other times during the year.
- Review cash flow and working capital. As part of the review, prepare a budget that includes a cash flow and working capital projection for the year ahead with the help of your accountant.
- Offer customers a variety of payment methods including BPay, direct credit, credit cards or EFTPOS. If your business is mobile, use a mobile terminal to accept payments.
- Mark invoices clearly with payment options and the account details of your business. By making the payment of bills as easy as possible you’re more likely to get a faster return on money owed.
- Offer discounts for payments received within the usual 30 days or large discounts for payments received within seven days. Hold off paying your own bills, however, until the end of the payment period unless discounts are offered and you’re able to take advantage of them.
- Review your assets, identifying any underused assets to determine if you are better off selling an item and hiring one when you need it.
- Evaluate your inventory. Excess stock ties up funds that could be more productively used elsewhere in your business. A key indicator to monitor and improve is your stock turnover rate, which is calculated by dividing your cost of goods sold, by your average inventory at cost.
- Last, but not least, keep an open relationship with your bank. By seeking expert help you may be able to identify solutions to potential problems and improve the chances of your business surviving any rough financial periods.
By taking some time to make sure you have good systems in place now and year-round, you can make your Christmas merrier, and your New Year even more prosperous!