I’ve got 99 Problems but Cash Flow Ain’t One

article by David Maj on the 15th of January 2019

It’s a problem we see in our office all too often – and we want to make sure no one experiences issues with Cash Flow. What is cash flow exactly, you may ask? It’s simply the movement of money coming in and going out of your company, and as you can imagine, the stopping of any direction of money flow is an important matter. DKM Accounting can help make sure that’s one less problem to worry about.

How to ensure you always have money on hand, AKA Good Cash Flow Management.

Make a Cash Flow Budget!

1. Plan out your predicted future spending
(a) Budget out any capital expenses, major inventory costs, business start-up fees, and PAYG Instalments – anything significant!
(b) Include an allowance for loan interest and loan principal repayments

2. Understand your payment terms
(a) Schedule in regular inflows and outflows, from customer payments coming in to your loan and supplier payments going out.

3. Have your cash flow budget by your side for a month, and when the month is up, compare your actual cash flows and cash balance to your original plans.
(a) How different is it?
(b) If you’ve gone over your budget, you can rework it until it more accurately represents how your business works.
(c) Or, you can use it as a goal to minimise cash outflows.

4. Remember to update your cash flow budget frequently, or according to whenever a new source of cash inflow or outflow appears!

General Tips

1. Reduce your spending!
(a) We’re sure this is obvious, but spending time doing price and brand comparisons (without sacrificing quality) is worth it in the long run.
(b) Try to get rid of old inventory or supplies before you purchase more, for less waste and more money saved.

2. Pay bills as late as possible – but within the payment terms
(a) This one should only be used as a last resort out of courtesy, but if you’re in a tight squeeze and need money on hand, this can help.
(b) Alternatively, paying by credit card in the later days of the payment terms can lengthen the amount of time you have to pay your expenses –
HOWEVER, only do this if you will pay your credit card on time!

3. Lease assets, don’t buy them
(a) Instead of paying up on a significant asset in one go, why not spread out your cash outflow? Remember to carefully consider the interest and
principal repayments and loan agreement first.

4. Encourage customers to pay ASAP for services
(a) How is your business currently set up to receive payments? Providing discounts for early repayments, direct debiting clients, and having
efficient procedures in place for sending out invoices immediately will help speed up cash in flows.

5. Have a good ol’ fashioned (and virtual!) piggy bank
(a) Emergency funds will never go out of style. If you have trouble building this up, contact us for our advisory services.

For a more in-depth and timely method of managing your Cash Flow, we can help with a personalised solution.

**Disclaimer Statement – The advice provided in the article above is general in nature and does not take into account your personal situation. It should not be relied upon without first consulting a professional.