Cash flow is one of the most important indicators of business health.
When your cash inflows are greater than your cash outflows, your business is in a stronger position to meet its obligations, pay suppliers and staff, invest in improvements, and plan for growth.
However, when costs regularly exceed income, or customers are slow to pay, cash flow pressure can build quickly. This can make it harder to pay suppliers, meet tax and superannuation obligations, manage wages, and keep the business operating smoothly.
For this reason, proactive cash flow management is an important part of running a sustainable business.
Practical ways to improve your cash flow
Cash flow management is an ongoing process. It involves tracking what money is coming in, what money is going out, and when those movements are expected to occur.
A cash flow budget or projection can help you plan ahead and identify periods where cash may be tight. The ATO notes that a cash flow budget or projection is one of the best ways to help ensure a business has enough cash available to meet tax and other obligations.
Common causes of cash flow pressure include slow customer payments, insufficient sales, rising costs, poor stock control, unexpected expenses, tax debts, or a lack of visibility over future commitments.
Some practical steps that may help include:
1. Review your sales and pricing
Strong sales are important, but profitable sales matter more.
Review your pricing, margins, products and services to make sure your business is generating enough income to cover direct costs, overheads, tax obligations and owner drawings.
2. Make it easier for customers to pay
The easier it is for customers to pay, the less friction there is in the payment process.
Consider clear payment terms, prompt invoicing, online payment options, automated reminders and upfront deposits where appropriate.
3. Monitor debtors regularly
Late payments can place significant pressure on cash flow.
Regularly reviewing aged receivables and following up overdue invoices can help reduce the risk of debts building up over time.
It is also useful to have a clear process for new customers, payment terms, overdue accounts and when work may need to be paused.
4. Manage expenses and supplier payments
Review your regular expenses and identify areas where costs can be reduced, renegotiated or better timed.
This may include subscriptions, finance costs, supplier arrangements, stock purchases, insurance, rent, utilities and discretionary spending.
Where cash flow is tight, it may also be worth speaking with suppliers early to discuss payment timing rather than waiting until payments are overdue.
5. Plan for tax, superannuation and payroll obligations
Cash flow issues often arise when tax, BAS, superannuation or payroll obligations have not been planned for.
Setting aside funds regularly for GST, PAYG withholding, income tax, superannuation and wages can help reduce pressure when due dates arrive.
Business.gov.au recommends planning cash flow, keeping good records, using digital accounting tools, creating a budget and keeping on top of due dates as part of good cash flow management.
6. Use reporting to make better decisions
Accurate and up-to-date financial information makes it easier to identify issues early.
Regular reporting can help you understand cash flow trends, debtor days, margins, expenses, stock levels, tax liabilities and upcoming commitments.
This gives you better information when deciding whether to hire staff, purchase equipment, take on debt, reduce costs or adjust pricing.
When to seek help
If cash flow is becoming difficult to manage, it is better to seek advice early.
Where a business is struggling to pay debts when they fall due, directors should seek appropriate professional advice as soon as possible. This may include speaking with an accountant, solicitor, registered liquidator or qualified restructuring adviser, depending on the circumstances.
Talk to us about improving your cash flow
We can help you review your numbers, identify cash flow pressure points and put practical reporting and planning processes in place.
If you would like support with cash flow forecasting, debtor management, budgeting or business reporting, please contact our office.
Kind Regards,
Aspire Accountants and Advisers
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