Cash flow woes can be a significant obstacle for small business owners. From delayed payments to unforeseen costs, these challenges can disrupt operations and even jeopardise survival.
Thankfully, there are strategies you can implement to enhance your financial health, and our experts delve into these solutions in this week’s edition of ‘Let’s Talk.
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Lisl Pietersz, Solopreneur, Communications and Transition Coach, University of Sydney Business School and AGSM at University of NSW
“As a small business founder and coach to budding entrepreneurs and small business owners, check out my top cash flow management hacks to help you better navigate economic uncertainties:
- Manage invoices and expenses: Ensure you invoice promptly and manage expenses well by, for example, negotiating better terms with suppliers.
- Make forecasting your bestie: Be sure to forecast your invoices and chase up late payments. A cloud accounting tool can help by flagging late payments before they get out of control. Also, ensure that you understand your market and economic conditions, such as the impact of future interest rate rises, so you can prepare for fluctuations in income and cash flow.
- Use AI-powered technology: There are a range of cost-effective AI-powered tech tools that can streamline business processes. As a start, check out cloud accounting tools which give you real-time financial data—a bonus when making decisions.
- Focus on scenario planning and check in with your accountant: Review current and emerging risks and what cash reserves you may need to draw on. Remember, no one saw COVID-19 coming!
“Cash flow management goes beyond reviewing the numbers. It is about strategic planning and being financially proactive so you can ease your cash inflows and outflows.”
Fabian Calle, managing director, small and medium business, SAP Concur Australia and New Zealand
“Cash flow management is critical for businesses of all sizes to ensure stability and growth. There are four essential ways to manage cash flow effectively:
- Real-time visibility: automating financial processes, such as expense reporting and invoice management, provides near-instantaneous insight into spending patterns. This transparency lets business leaders make informed decisions and adjust operations swiftly to ensure a steady cash flow.
- Clear spending policies: business leaders should establish specific limits and approval workflows tailored to their unique needs. Automated systems flag non-compliant expenses before they escalate into significant issues for more control over spending. Encouraging all employees to understand and adhere to these policies reduces the risk of unexpected costs significantly and improves overall financial stability.
- Consolidated company expenditures: a unified view of all expenses simplifies identification of cost-saving opportunities and reduces redundant or excessive spending. It also streamlines auditing processes, making it easier to pinpoint and address any discrepancies.
- Data analytics: analysing spend trends and patterns lets business leaders better predict future cash flow needs and adjust budgets accordingly to proactively manage current finances while positioning the company for long-term growth and profitability.”
Steven Nicholson, Director at GearChange Business Advisory
“SMEs are currently squeezed between the pressures of rising costs, higher borrowing costs and lower consumer spending due to the cost-of-living crisis. In such times, cash flow management can be the difference between survival and business failure. Here are my top tips for success:
- You need a budget, and a cash flow forecast for the next 12 months. Without visibility and a target to report against, how can you monitor what you are spending?
- Your cash flow forecast will highlight the times when cash flow gets tight – BAS and super payments, wages time. Visibility enables you to make decisions to manage cash flow through these periods.
- Budget preparation shines a light on costs. Remove all non-essential expense, such as subscriptions you no longer use, spend that adds little value.
- Shop around for the best deal on utilities, telecoms and insurance. Don’t let them renew without reviewing.
- Check payment terms for customers. Don’t give more credit than you must; chase outstanding debtors. It may work to give a small discount for early payment for large invoices.
“Outsource this to the experts if you don’t have the time or expertise to do this yourself. Your business will thank you for it.”
Rhondalynn Korolak, Group Managing Director at Breeze, Founder and CEO of Businest, Cash Flow Expert, Author of Financial Foreplay®
“Combating Your Chronic Cash Flow Crises
If you constantly struggle with cash flow issues, it’s highly likely you have “chronic poverty” mindset. In order to push beyond these roadblocks that keep you poor, you must first identify the underlying reasons you keep sabotaging your success and address them at the source.
“Breaking Bad Guide to Boosting Your Cash Flow
(aka Are You the Danger in Your Own Business?)
There’s more to Breaking Bad than science, shocking drama and spellbinding character development – there’s plenty of great advice that you can use to boost your cash flow. If you want to succeed and become even more successful than you are right now, you should consider:
- 5 practical lessons from the Walter White College of Cash Flow
- Why the “C” word is the biggest threat AND opportunity for your business
- How to cook up the skills that will maximize the cash that flows in and minimize the cash that flows out of your business”
David Price, CEO at Peninsula Australia and Peninsula New Zealand
“Cash flow issues and financial troubles are a worrying reality for many Australian business owners in 2024, compounded by the current economic environment of rising operating costs in 2024. Understanding what steps to take is crucial for business resiliency and, in some cases, survival.
“Assess your income statement, balance sheet and cash flow statement. Review your bank accounts and understand your income and expenses. Track where your money is coming from and where it’s going. Are your accounts receivable growing, indicating slow collections? Are there areas where you can spend less without sacrificing quality?
“Review all company assets and liabilities. Can underutilised assets be sold or monetised to improve cash flow? Are there outstanding debts impacting your financial health?
“Analyse operating cash flow, which reflects your core business activities. Is there a negative cash flow from operations? Create a cash flow forecast that estimates your future cash inflows and outflows. A well-constructed cash flow forecast is a powerful tool for navigating a business turnaround. By anticipating future cash needs, you can predict potential money shortages before they happen, make informed investment decisions, and use your cash flow forecast to monitor your progress.”
Elise Balsillie, Head of Thryv Australia
“For a small business to be viable long-term, cash flow is king.
“Good cash flow management means there’s money flowing in and out of your business. It is a great marker for determining performance and profitability in real time – but also to forecast the years ahead.
“While this sounds straightforward, the reality is that most small businesses struggle with cash flow. A recent survey reported that 87% of small businesses in Australia experience cash flow issues.
“While a business can be profitable, it can still experience cash flow problems, typically due to a failure to collect receivables and not being paid on time.
“So, how can a business owner ensure cash flow is uninterrupted?
“One of the best ways to manage the books is by integrating cloud-based accounting software. The adoption of software can streamline invoicing and payments, allowing customers to pay invoices from their phones and businesses to track and secure overdue payments with automated follow-ups.
“Another option is to offer an incentive for customers to pay on time. This could include discounts or special offers for early payments.
“A few simple changes in the way businesses collect payments can help them remain cashflow positive while freeing up time to focus on business growth.”
Beau Bertoli, Co-Founder and Chief Revenue Officer at Prospa
“Many small businesses are struggling to stay on top of their cash flow right now. In a recent RFI Global survey commissioned by Prospa, two in three small businesses reported elevated stress levels and burnout, with cost of living and lack of consistent cash flow cited as the most common causes. A depleted runway for expenses is also an issue, with two in three small businesses surviving on less than two months of cash reserves, a survey by Prospa and YouGov found.
“With high interest rates and inflation still on the horizon, SMEs need to plan for the unexpected and proactively manage their cash flow to ensure they’re not financially vulnerable. One of the steps SMEs can take is to review and track their business expenses. Financial apps and tools like Xero or the Prospa App can give small businesses insight into valuable business information such as profitability and cash flow, all in one place.
“Forecasting helps to spot trends and manage cash flow issues early before they become a crisis. Using specialised software can help small businesses make quicker and better decisions, such as setting aside revenue for an upcoming quiet period or exploring financing options to boost cash flow. A good accountant or broker can help small businesses to stay on top of their incoming and outgoing funds, and plan for future financial needs.”
Mollie Eckersley, Head of Operations at BrightHR ANZ
“Unfortunately for time-strapped small businesses, the key to cash flow management is usually spending more time on reporting, record-keeping, and ensuring that every investment made is bringing back a return on investment.
“It’s not a good idea to let cashflow management fall through the cracks. That’s why my best tip for SMEs looking to make the most effective use of their time and resources is to digitalise the process as much as possible.
“Small expenses and inefficiencies going unchecked can snowball quickly into major challenges. Specifically for fast-growing businesses. I think it would surprise most people to learn what a difference the right software tools can make. For example, we found that our clients put aside over $4,000 in tax savings just by using our app for their staff expense tracking and mileage calculations.
“Using cloud-based storage for record-keeping, utilising software for expense tracking, and making smart investments in tools that will deliver long-term growth opportunities is key for small businesses in Australia.”
Luke Fossett, General Manager at GoCardless
“The last few years have seen SMEs continue to grapple with challenging economic conditions. Xero’s Money Matters report shows that 87% of Australian small businesses have reported at least some cash flow issues in the past year. Two issues that are often overlooked when discussing SMEs cashflow are late payments, and the cost of time.
“According to our research, more than half of Australian business leaders are concerned that the number of late-paying customers will increase this year. To prevent this from disrupting cash flow, it’s important to set clear payment terms or deadlines and closely monitor pending payments. This opens up a line of communication between you and the customer, making it easier to follow up on overdue payments. Offering a range of payment options can also help better accommodate different customers and their ability to pay, eg. paying in instalments or requesting deposits to avoid as much impact on cash flow.
“Time spent on tedious background admin work can also have a large impact on cash flow for SMEs. Using tech integrations, such as Quickbooks and Xero, can save time by avoiding tedious processes such as manually reconciling bank transfers, sifting and processing old-school file downloads, etc. As these integrations talk to each other in real-time without any human intervention, business owners and their teams are instead freed up to interact with customers and spend time directly creating revenue for the business.”
Percy Hung, CEO & Co-Founder at Choco Up
“As Cyber Monday and Black Friday approach, e-commerce SMEs face both a massive opportunity and a significant challenge. These peak sales periods can be incredibly profitable, but only with effective cash flow management.
“Success during these times hinges on balancing investments in inventory and marketing with available cash flow. Running multiple marketing campaigns is crucial to capturing customer attention during busy periods, but the upfront costs can quickly deplete reserves. Without careful planning, businesses may find themselves unable to restock quickly enough or fund additional promotions, potentially missing out on prime sales opportunities.
“To mitigate these risks, exploring financing options that bridge any cash flow gaps is essential. Flexible solutions like revenue-based financing provide quick liquidity access and offer repayment terms that align with business performance, easing pressure during off-peak sales periods. This approach ensures that businesses can maintain momentum without overstretching resources or sacrificing ownership.
“Looking beyond the immediate sales season, access to such financing supports long-term growth and sustainability. As end-of-year opportunities approach, reviewing cash flow strategies and ensuring robust financial planning are key to capitalising on these crucial periods.”
Narendra Shukla, Consulting Director at Edwise Consulting
“While a well-thought-out cash flow can help a business thrive, one that lacks meticulous planning and monitoring may struggle to stay afloat. Here are some hands-on tips for SMEs to optimise cash flow and stay in net positive.
- Forecast and monitor your cashflow through monthly, quarterly, and annual cash flow estimates. Diligently monitor expenses and account receivables.
- Create a cash reserve for contingency and set policies to ensure funds are only used for contingency purposes.
- Actively chase payments because early payment helps in balancing cashflow. Businesses should be sending invoices to their clients as soon as they’ve delivered goods or services.
- Reduce the receivable cycle and consider renegotiating a lower payment cycle if it’s over 30 days. Charge interest for frequent late payments and offer discounts to encourage early payments.
- Make payments only when they are due and avoid early payments unless it comes with rewards (for example, discounts). This helps in balancing cash flow.
- Linking inventory to demand can save businesses from blocking their cash and potentially paying extra for storage and insurance.
- Consider using a credit line for short-term working capital requirements. This helps in managing emergencies should they arise while balancing cash flow until clients have paid the invoices.”
Michael Fingland, CEO of Vantage Performance
“A well-maintained 13-week cash flow forecast is a fundamental tool that every business needs, and yet we often find many small to medium-sized businesses do not one have in place.
“Taking a 13-week view of cash flow provides useful data on your actual financial position, reflective of the cash cycle of most businesses. When well-maintained, this forecasting tool can play a critical role in supporting business owners and leaders to make informed strategic decisions.
“A cash flow forecast can be as simple or as complicated as the business needs, and it only takes a few hours to set up a simple forecast.
“Why is this so important? A reliable forecast can give advance warning of a cash shortage and help the business assess their ability to generate cash for working capital requirements, to fund an expansion of operations, to downsize or consolidate, or to achieve steady growth without over-trading.
“However, cash flow forecasts are not a set-and-forget tool and require regular maintenance to remain accurate.
“Regularly reviewing actual receipts and payments to maintain a reliable projection will put business owners and leaders in a stronger position to identify potential cash flow problems and navigate unexpected pressures as they arise.”
Konstantin Klyagin, Founder of Redwerk and QAwerk
“A healthy cash flow is essential for SMEs to meet their financial obligations. While profitability is crucial, cash flow impacts day-to-day operations and long-term success.
“Diversify your income. Everyone knows this, but it can be tough, especially when starting out. Don’t rest on your laurels if you’ve landed a big client. Secure new contracts quickly. Back in 2009, Redwerk relied heavily on one major client. To avoid overdependence, I aggressively pursued new business. This meant networking, pitching our services, and traveling to meet potential clients. Our efforts paid off with new contracts in Europe and the US.
“Build a cash cushion. Unexpected challenges can arise, so having a financial safety net is vital. A client could drop you at any moment, even for reasons beyond their control. Aim to save three to six months’ worth of operating expenses.
“Streamline invoicing and collections. Late payments can put your business at risk. Send invoices immediately after delivering goods or services. Incentivize your clients to pay on time, whether through discounts for early payments or penalties for lateness. Invoicing software can help automate reminders and track payment status.
“Finally, review your expenses regularly and eliminate non-essential costs. Sometimes, businesses keep paying for subscriptions employees are no longer using, and with time, the list of different tools and services adds up, increasing your cash outflow.”
Sam Steel, Managing Director at FleetCard
“With inflation and interest rates remaining high, and the cost of living continuing to bite, managing cash flow is vital for SMEs if they are to weather the storm.
“Customers might be taking longer to pay their bills, while at the same time suppliers’ prices are going up, putting the squeeze on at both ends of the supply chain.
“This is where FleetCard can help SMEs manage their cash flow in tough economic times. The many benefits offered by FleetCard include savings on fuel and related costs, exclusive deals, plus close monitoring of fleet activity and trends.
“The detailed reporting and analysis helps identify other areas for cost savings by highlighting inefficiencies such as unauthorised purchases or fuel misuse. FleetCard also includes features such as purchase controls and transaction limits, so SMEs know exactly what is happening, and when, on their accounts.
“And, because we all know time equals money, FleetCard streamlines administration by automatically generating all-in-one and simplified invoices for all fuel and fleet-based purchases. Paperwork is kept to a minimum, which gives our customers more time to get on with what they really want to do, which is successfully running their businesses.”
Hunter Leonard, Founder & CEO at Blue Frog Marketing
“Of course all the technical aspects of cashflow management recommended by your accountant are important, but two often overlooked aspects of cashflow management are pricing for value, and good old time management. Nothing you do to invoice correctly and pay people to collect debt will ever help if there is not enough in the transaction for you. Understanding your value proposition and then being able to sell your products and services at a high enough margin(the amount you keep) is perhaps the fundamental issue that needs to be addressed in a marketing strategy. The time management element has two parts. Invoicing and collecting on time, as well as managing both the debtor days and when you pay your bills is important, but if you don’t invest time regularly in continuing to understand your value proposition, the cashflow game is over before it begins. In our research of 10000 business owners we identified 8 categories of challenges faced by business owners, and there is no doubt that cashflow is one of the most common and deadly to the survival of your business if not managed correctly.”
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