Cash flow refers to the movement of money in and out of your business. Poor management of these funds can lead to missed opportunities for growth and in the worst case scenario, business failure.
Essentially, accurate cash flow management is the cornerstone of any business’s success. Yet, it poses a significant challenge for many individuals and businesses today. While profitability is a clear indicator for business success, it is not without strategic cash flow management. It is the very core of your business’s health and longevity.
In this guide, we aim to equip you with the tips needed to manage your cash flow. Whether you’re seeking to improve your current practices or you’re entirely new to the concept of cash flow management, we’re here to help you take charge of your finances.
Plan your cash flow budget
Over 80% of businesses fail due to insufficient cash flow while 20% of small businesses fail within the first year of operations. Therefore, creating a cash flow budget plan is the foundation of effective management. Simply put, this involves estimating your expected income and expenses over a specific time period, allowing you to plan for the unexpected.
List all potential revenue sources and categorise your expenses. Then, make projections based on historical business data. If you’re just starting out, estimate your potential income and overtime, you can continue to make the necessary adjustments to keep track of your income versus your expenses.
The Australian government provides useful tools and templates on their website to guide you towards creating a budget for your business, ultimately helping you make healthy business decisions.
Prepare a cash flow statement
An accurate cash flow statement provides a detailed snapshot of your business’s financial health. It tracks both the inflow and outflow of income and spending over a given period. A cash flow statement also highlights liquidity, revealing whether your business is able to sustain immediate financial obligations.
By keeping good records of your day-to-day business transactions and creating regular cash flow statements, you can identify specific patterns, predominantly unnecessary expenses that can be reduced. With a clear cash flow statement, you’ll be able to make informed decisions about potential investment opportunities.
Regularly track your finances
To regularly track your finances, opt to using specialised accounting software or spreadsheets to track cash flow in real-time. Remember to always stay on track of due dates to avoid overpaying on late fees and to help you address core issues before they escalate. Here’s a list of important financial dates in Australia.
Likewise, regular cash flow tracking will help you identify specific trends. These include seasonal dips in revenue or increasing operational costs due to business expansion. Most importantly, don’t forget to get your tax right. If you’re an employer, it’s crucial for you to understand the entitlements your employees have and to keep track of this. This way, you can adjust your cash flow management strategy accordingly.
Always have a backup plan
You never know when a rainy day might strike. No matter how well you manage your cash flow, unexpected circumstances may still arise. By having an established backup plan, you can weather any disruptions without compromising your everyday operations.
Plan ahead by building an emergency fund. Additionally, consider diversifying your revenue streams to mitigate dependency on a singular income source. You might also want to review your insurance policies to guarantee adequate coverage during the unexpected. While it might seem tedious or unnecessary at the moment, a well thought out contingency plan will ensure that your business continues to remain resilient even in the face of uncertainty.
Get Help
Managing cash flow can be a complex and challenging process. Hence, it might be best to seek professional assistance. Engage a qualified accountant or financial advisor to help you analyse your current cash flow and to optimise for future management decisions.
Likewise, they can also help you with preparing detailed and accurate cash flow statements and forecasts. These can be specifically tailored to your industry, location, and individual circumstances.
How Can Mighty Partners Help?
Reckon your business has its cash flow in order? Do you now need a cash injection to further propel your business growth? The team at Mighty Partners craft alternative business funding solutions tailored to your specific needs.
We help you accelerate your cash flow by creating customised debt financing options with flexible repayment terms. Need cash now? We prioritise fast approvals so that you can kick start your growth instantly.
Ready to unlock your business’s full potential? Contact us today.
