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March 16, 2016
Understand your business finances
June 19, 2016
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Cash is King

Cash is critical your business success. While your focus is on making sales and profit, if this is not translated into cash, your business will go down

You need cash to maintain crucial elements of your business such as paying your staff on time. A happy team is a key to your business success.

Worrying about cash can take your focus away from running the business. If your material suppliers have not been paid, you won’t be able to get a job completed.

Having cash in the bank gives you the flexibility to make unexpected purchases, which will help you make more profit.

To help manage your finances, have Cashflow Forecasts prepared. It’s better to know when there are going to be shortfalls ahead so you can arrange funding.

Having access to cash can offer you opportunities to buy other businesses, especially if you’re interested in investment. However, you need to look ahead to see how much that acquisition will drain your cash reserves.

If you have cash for capital expenditure, even if on lease, you will need to know that you can meet the monthly repayments.

Your business must make cashflow one of its most important priorities. Here are 12 steps we recommend you take to improve your business cashflow:

  1. Timeliness – once a job has started, e.g. materials are in stock, the job must be completed as soon as possible, and delivered to the client quickly. Ensure your invoice is made out on the day of delivery, so your invoice has a better chance of being paid in the next payment run.
  2. Don’t allow materials to be delivered too far in advance of when they are required. You will be invoiced for supplies from the date of delivery. Organising “just in time” delivery can give you an extra 30 days to pay.
  3. Don’t cut corners on a job. If there is a flaw, fix it before delivery. Otherwise the customer will complain, and there is a high possibility of rework and the invoice will be paid much later than if job was done properly in the first place. Investigate why there was a flaw and fix the process so it doesn’t reoccur.
  4. Have clear Credit Terms. Do credit checks on clients before giving them credit. Make sure they sign an application form which spells out their responsibilities. Minimise the time before payment is due, although this will depend on the industry. Where materials need to be purchased up front, ask for a deposit from your client. Where work needs to be completed over a time period, such as in the building industry, ask for regular progress payments.

Cash in Hand

The money’s better in your account so you can keep your business running and complete each job in a timely and effective manner.

  1. With major suppliers, the more notice you give them about forward orders, the later you can request delivery (as long as the supplier is maintaining their stock). This makes it easier for the supplier to plan better, you can reduce your stock holding and slow outgoing cash.
  2. Buy your equipment on lease where you can. Cash in hand gives you more flexibility and improve your opportunities to make a profit.
  3. Use a credit card to gain an extra month’s credit – as long as you repay the whole monthly bill.
  4. Get a Line of Credit – a bank overdraft, factoring, trade finance for the times when you need it means you can better manage your off season or purchase materials for a large order.
  5. Negotiate better terms with suppliers.
  6. Have certainty that your stock will move in the next 90 days or so before you buy any specially discounted bulk purchase. Otherwise the cost of obsolete stock could be much greater than the discount gained. Sell any obsolete stock for whatever you can get.
  7. Don’t pay suppliers earlier than their specified due date.
  8. When you really can’t pay on time, be open with suppliers and keep them informed about when you will pay. The ATO is also flexible with small businesses that have a generally good payment record and ask to pay a quarterly BAS payment in instalments.

BCP Growth Partners provides expert and experienced advice to help you keep your cash flowing and your business growing.

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