Forecasting and monitoring cash flow is vital in any small business. It helps you plan for the good times and bad. Yet it can be difficult when your business is rocked by major events like global pandemics or seasonal drop-offs in sales.
Even so, being able to predict your cash flow pays off. If you know a slower period is coming up, you can postpone some expenses and develop a plan to get you through the slump. Or, if strong results are on the horizon, you can confidently plan an expansion.
To help keep you on track with cash flow, here are key strategies from Dr Jana Matthews, Director of the ANZ Business Growth Program. As Matthews notes, “It’s not a matter of ticking off every single item underneath each of the three strategies. Rather, start with small, manageable tasks, each of which can lead to a ‘marginal gain’. The aggregation of these small gains can have a very positive impact on cash flow and the financial health of your business.”
Increase the amount of cash flowing into your business
Bringing more money into your business is a logical first step to shore up your long-term financial success. While these tips may sound obvious, small changes can really make a positive difference to your cash flow in the long term.
- Refresh your promotional and marketing approach
- Offer new products or services to your current customers
- Offer product/service bundles to current and new customers
- Regularly review the price of your products or services
- Broaden your channels to market and find new customers who want what you are selling
- Improve your sales skills and your sales pitch
- Close sales faster.
Collect what’s owed to you faster
In today’s uncertain economic climate, many businesses are experiencing a slow-down in payments. Customers may lack the ability or willingness to pay on time, and businesses need to have strategies in place to cover cash short-falls. As Dr Matthews notes, a business loan or overdraft is an important tool in managing cash flow. She also recommends implementing strategies to speed up payments, such as:
- Find out when customers pay their invoices, and send your invoice in time to get in front of a customer’s queue of payments
- Change your pricing strategies (e.g. upfront payments, progress payments, subscription or monthly payments, auto-renewals)
- Request progress payments and send the final invoice the day the job is completed
- Use electronic payments and online transfers of funds.
Control the speed of cash flowing out of your business
Finding ways to save can help stablise cash flow. Look at all your business processes – from administrative to operational – and find ways to reduce your expenses. Sometimes, upfront investment in new tools or infrastructure may help you save money in the long term for example, a new piece of equipment that helps you produce more products every month; or a new packaging system to save money on postage.
Here are some common places to start:
- Reduce the cost of the goods produced (e.g., materials, labour, production, and sales costs)
- Improve business efficiency (e.g., reduce the numbers of steps or people involved, produce more per hour)
- Reduce your administration costs (e.g., invoice electronically, require pre-payment, enable staff who can do so to work from home)
- Clarify delegation and authorisation levels (e.g., clarify who can make what kinds of recommendations vs. decisions, require two signatures on expenditures above a certain level)
- Hold staff responsible and accountable for meeting their budget - revenue and expenses.