Dynamic Business

When business owners experience cashflow difficulties, there is usually one of two responses: immediate rallying (some may use the word ‘panic’) to address the situation, or denial. Neither are particularly effective strategies.

I have seen denial in action and it solves nothing, actually makes the situation far worse, pulls your business back and in some cases puts the whole viability of the business at risk, and does nothing to raise the bar on your skills as a business owner. Panic is just as bad as it has you clutching at anything in the hope of improving the situation.

Cashflow difficulties only go away if you address them, and there are some simple, proven steps to do that.

1. Assess your current position – do a cashflow forecast

• You have to know your exact financial position, so you can manage it.
• Make sure you know what all your expenses are over the next few weeks.
• Don’t forget to include those expenses you may be inclined to forget about.
• Know exactly what income you can expect over the same period of time; not when you invoiced your clients, but when you expect them to pay you. You may have invoiced a client two months ago, but know for sure that they will be paying you by the end of the month.
• Do a cashflow forecast. If you don’t know how to do one ask your bookkeeper or accountant to send you a template (you’ll pay them later!). It’s simply a spreadsheet by month (that’s usually the most applicable timeframe for service-based (non-retail) businesses) that tracks payments expected in that month, with payments you will be making. The bottom line is a net surplus or deficit.
• If there’s a deficit, you can move payments around by using the next strategy…

2. Track hidden costs

Not hidden but sometimes forgotten automatic debits from your account/business credit card.

• These could include insurances, memberships, subscriptions, lease payments (car, computers etc), interest payments.
• I’m not saying cancel them, just don’t forget them.
• Some may be more cost effective to pay for 12 months in advance, rather than monthly, when your cash position is good.
• Don’t forget costs like ATO payments – BAS, installments etc, as well as superannuation payments.
• Many of these can be ‘moved around’.

3. Make arrangements with everyone

You can pay any bill later than the due date by making an arrangement with the service provider.

• You can do this for the phone bill, the tax office, and most others. Institutional service providers are more lenient as they have thousands of customers; smaller service providers (like your bookkeeper or graphic designer for example) will be less flexible.
• By making arrangements to pay at new due dates, you are able to move around your payments to coincide with money coming into your account.
• Don’t forget about credit rating – you don’t want to extend beyond their timeframes and into what is categorised as being in default. Being in default can potentially impact your credit rating, so make sure you stick to agreed payment plans.
• Always communicate on an ongoing basis, especially if you need more time, but never stop communicating with your creditors when you have cashflow problems. That is the worst thing to do.