NEWS

With gloomy economic times ahead and it is now more important than ever to have a good handle on your business numbers and ensuring you have a buffer or plan B should the need arise.

Good cash flow management is important – particularly for new and growing businesses. Having a plan in place is pivotal to your success. Hoping for the best is not a strategy.

 

Improving Your Cashflow

A solid forecast is essential to a good cash flow plan. Recognising periods where things are tight will allow you to make allowance for them. Similarly when the cash is pouring in - recognising that it is temporary and not going on a spending spree. Forecasts can be used to apply for funding/overdrafts from your bank.

Using modern accounting software such as Xero has proven to reduce accounts receivable days. Accounts receivable days are the average time a customer takes to pay your invoice. This includes:

• Invoicing promptly
• Having clear instructions on how you can be paid and due date
• Sending out automatic reminders for any late payments
• Having a PAY NOW button on your invoices so that clients can click on a link and pay by credit card

 

Good Software Helps

Also having an easy and accurate system to see a snapshot of what is outstanding and what is overdue is important as well as having a good record of what you owe and the due date.

Having good software in place will make it easy to send statements to clients which you should get into the habit of doing once a month. It is a good idea to have a process in place to follow up late paying debtors. If you do not follow up, your debtors may prioritise other accounts over yours.

 

Managing Your Expenses & Pricing

Review expenses regularly to look for ways to reduce costs. Having these clearly shown in your accounting system is beneficial to help keep on top of your bills.
Review your price structure, products and clients. Are some products more lucrative than others? Are some clients more lucrative than others? Are there poor-performing lines you can cut to focus on the better-performing lines? Look at what options you can take to increase sales and expand the client base.

 

Inventory Management

If you have inventory, it is important to have a good inventory management tool. If you are carrying more stock than you need, you are tying up cash that can not be used for other purposes.  If you are overstocked, it may be in your best interest to sell stock at a discount to get the cash in your bank.

Manage your debt, debt can be a major drain on cash flow, be careful about taking on new debt.

 

Managing Your Tax

Manage your income tax instalments, if you are struggling with the large tax instalments, or the tax payment dates do not align with your cash flow, talk to your accountants as they can utilise tax pooling to smooth out your payments.

 

Ask For Help

Speak to your accountant, if things are tight, talk it through with your REAL client manager to help you work out what actions you can take.

 

Disclaimer

This information is intended to provide general advice only.  We recommend you discuss your specific situation with your Accountant.