Managing Cash Flow

Picture of Steven Nicholson
Steven Nicholson

August 4, 2023

Managing business cash flow is undoubtedly the most significant challenge that small business owners face. Cash flow is the lifeblood of any business, and managing it effectively is essential for business success. In the current business climate, with price inflation leading to higher costs, managing cash flow has never been more critical.

In this article, we’ll explore some of the challenges of managing cash flow and why having a strong toolkit and dashboard of your financials is key to understanding your business and planning for the future.

Challenges of Managing Business Cash Flow

1. Uneven Cash Flow: Cash flow can be unpredictable, with income and expenses not always coming in at the same time. This can make it difficult to manage cash flow effectively, especially for businesses that rely on a seasonal income or who bill customers infrequently but for large amounts.

2. Unexpected Expenses: Unexpected expenses can cause significant disruptions to cash flow. Small businesses may find it challenging to find the funds to cover unexpected costs, which can impact business operations and profitability by making it difficult to buy inventory or roster on sufficient staff to run day-to-day operations.

3. Poor Payment Management: Late payments or non-payments by customers can also have a significant impact on cash flow. Small businesses may need to invest time and resources to chase customer payments, which can take them away from other critical business activities.

4. Limited Access to Credit: Small businesses may have limited access to credit, making it difficult to obtain funding when needed. This can make it challenging to manage cash flow, especially during periods of high expenses or low income. Lenders will want to see up-to-date financials and cash flow projections as part of any lending evaluation.

5. Poor cash flow visibility: Small business owners do not have the time or the skills to produce cash flow projections and what-if plans of future cash flows.

Why Having a Strong Toolkit and Dashboard of Your Financials is Key

Having a strong toolkit and dashboard of your financials is essential for managing cash flow effectively. Here’s why:

1. Better Visibility: With a financial dashboard, you can get up-to-date data on your business’s financial performance. This can help you identify cash flow issues early and help you take action to address them, such as by delaying the purchase of new equipment or paying in instalments rather than in one lump sum. If you are waiting weeks or months to receive out-of-date reports from your bookkeeper or accountant, it becomes more difficult for you to act quickly. 

2. Historical Data: Historical financial data is used by good quality tools and accounting software to identify trends and predict future cash flow levels based on historical patterns of receipts from customers and expenses. Your accountant or bookkeeper should be able to review these projections for accuracy and advise you so that you can make more informed business decisions. By understanding your business’s financial history, you can plan for the future more effectively.

3. Automation: Automation can help you save time and reduce errors in your financial management processes. With accounting software like Xero, you can automate tasks like invoicing, expense tracking, and reconciliation, freeing up time for other critical business activities. Automation also means your financial data is closer to real-time which is critical when monitoring tight cash flow periods. Your accountant or bookkeeper should be able to advise on what tools and technology are right for your business with the goal of producing nearer to real-time cash flow modelling.

4. Payment Management: Your financial dashboard should show you how long it is taking for your customers to pay you, and the amounts of payments to suppliers you have coming up in the next days and weeks. Automatic reminders to send to customers and one-click easy payment options are great ways to speed up cash flow coming into your business, and they save time chasing customers.

5. Easy Reporting: Financial dashboards and toolkits make it easy for your accountant or bookkeeper to create reports that provide critical information on your business’s financial performance. This can be provided electronically so that you have it to hand whether you are on-site or on the road meeting customers. With the right information at your fingertips, you can make informed decisions that help you manage cash flow effectively.

So, to recap, managing business cash flow is one of the most significant challenges that small business owners face, particularly in the current business climate of price inflation. However, with the right toolkit and dashboard of your financials, you can gain real-time insights into your business’s financial performance, plan for the future, and make more informed business decisions.

It’s vitally important that you are working alongside an experienced accounting partner like Retinue Accounting, who understand what cash flow information you need to make better business decisions and can deliver it with the level of insights that will ensure your business’s finances are managed effectively. With this peace of mind, you can stop worrying about managing cash flows, allowing you to focus on growing your business.

Retinue’s payroll service includes the processing of hours and wages rates provided by you. We do not determine award rates for your employees or provide advice on the correct employment status of your employees. It is your responsibility to ensure that your employees are paid correctly and we recommend obtaining advice from specialised employment relations experts.

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