How to Improve Your Business Cash Flow


Since our recent seminar where we gave away secrets on maximising cash within businesses, we’ve received several enquiries asking for details of our Tips & Tricks.  Following is a brief summary of some of those discussed on that evening.  Importantly, whilst many businesses are similar, every business is unique in its own way so what works for one may not work for others.  Please be mindful of this when choosing tips to implement in your business.  If you have any queries on what would work best for you, of course, we’d be only too happy to help.

1. Firstly, and it sounds brutal, but ‘Get Educated’

  • Understand your business and where cash can ‘hide’ within it.
  •  Understand not only the difference between profit and cash but also where your profit and cash are showing within on your balance sheet (no it’s not just in your bank account).
  • Understand your Cash Conversion Cycle and why it’s so important.
    • Your Cash Conversion Cycle defines how long cash is tied up in your business.  It’s imperative to understand this when planning for growth.

2. Secondly, ‘Educate your Customers’

  • Clearly define the roles and responsibilities of those delivering and receiving your goods/service.
  • Ensure your customers are aware of the expectations of both you and them.
  • Don’t be scared to be clear on payment terms because if there are going to be any issues it’s best to understand these before you commence.

3. Thirdly, constantly monitor your margin.

  • The lower your margin, the more sales you need to make to cover your overheads and then leave profits.
  • Many things can cause margin creep so it’s important to be across what can affect your margin, and what you must do to ensure it’s suitable for your operation.

4. Use a Cash Flow Forecast Model

  • This is a great tool to really understand the cash requirements for your business.  In fact, all clients with which we do any kind of growth work, we always ensure they have a working model for use not only to forecast cash flow but also profits and estimated increases in the value of the business.
  • This is especially useful for those sectors where there is seasonality or lumpiness in cash flows due to whatever reasons.
  • Keep your forecast updated and review it regularly so as you can act on any potential ‘hiccups’ early.

5. Keep on top your Debtors (Accounts Receivable)

  • Be consistent with your entire approach to debt collection.
  • Be consistent with your entire approach to debt collection. This point is so important it was worth mentioning twice.
    Many don’t follow up outstanding amounts until well after they’re due because they find it a difficult or unpleasant task.  If this is you, you need to reset your way of thinking about this.  This is your cash which you are entitled to receive.  You’ve done the work and you should be paid for it.  There should be no reason for not following up outstanding debts. It’s well known that the longer you leave amounts uncollected, the less likely it is you’ll ever receive payment. We can help you learn or even take on the role for you if you need help.
  • Create a Debtor Collection Plan that works for your business. The plan should escalate as it progresses and should include:
    Timing of your communication –

    1. Reminders
    2. Follow ups email/SMS
    3. Phone call
      – Ensure you understand any reasons for non-payment.  I’ve seen too often where things have escalated
      beyond repair due to miscommunications.
    4. Explanation of escalation and options
  • One of the final steps in your Debtor Collection Plan should be escalating to external debt collectors or taking legal action if required.
  • The very short of collecting debts, is if you’re slack in chasing them, they’ll be slack in paying, so please don’t fall in to this trap.

6. Use creditors payment terms to your advantage:

  • Is there a discount for early payment or direct debit?
    – Does that make it worthwhile utilising more of your cash to pay sooner?
  • Try to negotiate better payment terms for your business.  Price is the usual topic of conversation but days to pay is often overlooked.  This is a negotiation so ensure you understand your creditor’s wants and needs as well as yours.
  • Where normal trading terms are offered, utilise the full term for payment.

7. Reduce how long it takes you to sell your Stock/Inventory (Work in Progress for service businesses)

  • Can stock be ordered closer to when it’s actually needed?
  • Is there old and obsolete stock that just needs to go?
  • Are you holding too much?
  • Cash is tied up in the stock you hold, both in the cost of the product and the holding costs, so it makes sense to only hold the minimum amount required to provide your goods/services as suitable for your business.

8. Plan for the what’s next:

  • Strategic tax planning is not only important from a tax minimisation point of view, but also from a cash perspective as it allows businesses to plan for future tax payments, including PAYG instalments/variations/refunds as appropriate.  This allows you to maximise your cash and ensure you have provisions for what you know is around the corner.
  • It’s always easier to fix a problem before it’s actually occurred so there’s no excuse for sticking your head in the sand when it comes to tax.

9. General Tips

  • Bring forward receipt of payments where possible.  This could mean changing the way you deliver your goods/services.
    – Consider partial payments upfront where possible.
    – Consider whether debtor finance or trade finance is appropriate for your business.
  • NOTE: whilst this can bring forward cash receipts, it does cost and essentially brings your cash cycle forward by a number of days, so it’s important to understand the pros and cons of this type of finance.
  • Make it easy for your customers to pay:
    – These days there is no excuse for not offering electronic payment options for your customers. The easier it is for customers to pay you, the more likely it is you’ll be paid sooner.
    – Direct Debit is an excellent example of how to make things easier for all. It can also save considerable time for administration on both sides.
  • PPSR Charges to protect your assets – increases the chances of getting paid and reduces the risk of losing assets/goods which remain unpaid.
  • Reduce Waste:
    – Waste occurs in virtually all organisations, and reducing or eliminating waste is an excellent way to not only increase your cash but also increase profits.
    – Use technology to automate, eliminate or delegate tasks wherever possible.
    Ask me how to perform a Waste Audit for your business to help release hidden cash.
  • Utilise Government Grants or payments where appropriate:
    – Often business owners are astounded to learn they can be reimbursed for activities they may be already conducting as part of their normal business.
    – R&D Tax Offsets and Fuel Tax Credits are two that often come up which save businesses cash, but there are many other state and federal grants designed to create jobs and promote innovation
    – It’s always worthwhile keeping on top of these as you may be eligible for a cash injection.

10. “That’s great, I’m doing all that but I still need extra cash”:

  • First, review points 1 to 9 above and ask yourself honestly “Am I really doing all I can in those areas”.  If yes then don’t be afraid to ask for help.
  • It may be a case where perhaps your business model needs reviewing to ensure continued viability.
    – As technology and industries change, associated businesses also need to change just to maintain their status quo, let alone achieve business growth. It’s imperative to review your business model constantly to ensure it is actually capable of achieving your goals.
  • Can you switch from Accruals GST to Cash GST?
    – With the increase from $2M to $10M in turnover for SBEs, the opportunity now exists for many more businesses to switch from accruals GST to cash GST, which essentially means there may be an opportunity for a one-off reduction in a BAS payment due no longer having to pay GST on trade debtors, until they’re actually collected.
  • Still struggling to make it work?
    – Act sooner rather than later. There are strict penalties for directors who trade a company insolvent so it’s important to understand your cash position so as to avoid this.
    – A solution is better than a cure. I mentioned earlier that it’s far easier to fix an issue before it actually becomes a problem.
    – Keep in your creditors informed, including how, when and why you’ll be able to pay them.
    – If your model is sound, but there is an interim cash flow problem, you should consider various funding possibilities for businesses to determine your next best option.

There are far too many tips & tricks to list, but the above should guide you toward increasing the cash available within your business.  We understand all businesses have unique differences so if you’re unsure of how to get started, we’re here to help you at any stage.  Please contact us at Advivo on (07) 3226 1800 or use our contact form for any assistance on how to increase the cash flow in your business.