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Proactive Cash Flow Strategies for Businesses

Written by Phil Grant . December 08, 2020
6 min read

For small business owners, there’s nothing worse than a cash flow squeeze. The shocking part of a cash flow crisis is that it often occurs when everything else seems to be going right. You struggle to produce quality products, and suddenly everyone wants them.

That’s what happened to Carrie and Jess, two sisters who started a women’s footwear business. They bootstrapped their partnership with their own funds, keeping track of their financials in a shared online Google Sheet. After their initial sales, they built budgets and realised they were earning healthy profit margins.

Yet sooner than they expected, Carrie and Jess found that they needed to raise money to hire workers, purchase more equipment and keep up with growing customer demand. Lenders asked them questions about projections, insurance and more. It was an overwhelming process, but they secured funding and got their financials under control. Today, Carrie and Jess credit much of their success to a careful focus on cash flow.

In this article, we’ll talk about several proactive cash flow strategies companies can use to extend their financial runways and secure the way forward.

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When Should You Consider Cash Flow Strategies?

New business owners like Carrie and Jess need reliable methods for smoothing out their cash flow. With the financial demands of a growing business, running out of funding can be a death sentence.

But new business owners aren’t the only ones in need of cash flow help. Established businesses sometimes run into cash flow headaches for a variety of reasons, including:

  • Rapid growth or expansion
  • Debtors not paying their bills
  • Increase in overhead expenses
  • Excess inventory because of market changes
  • Economic downturns (E.g. COVID-19 has caused cash flow problems for many companies).

Cash flow problems can happen to any company, large or small. Fortunately, many solutions exist for turning the issues around.

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Business Strategies for Improving Your Cash Flow

The first step to smoothing out the ebbs and flows is to determine your current position. We can assist you with this and help you decide which strategies will work best for improving your financials throughout the year. Let’s look at some of today’s most effective cash flow strategies.

Change Your Invoicing Terms

When you give customers 30 or 45 days to pay for products or services rendered, you must finance your operations until you receive payment. Long invoice payment periods put your cash flow at risk. If possible, consider tightening invoice periods and incentivising early payments by offering discounts.

Sell or Lease Idle Equipment

When facing a cash flow crisis, consider all of your assets. For instance, if you have idle equipment, sell it for cash or lease it to another company that can use it now. Even if you’re currently in need of the equipment, you might be able to rent it for less, while the proceeds of the sale can fund your business for now. Idle equipment can be costly, especially if you have to pay for its storage and maintenance.

Look into Government Subsidies for Taking on New Employees

Hiring new employees can be expensive. Often, businesses need new talent while they’re expanding, and money is extra tight. To reduce the punch to your budget, find out if you qualify for any government subsidies that can lower your costs as you hire new employees, such as the JobMaker scheme hiring credit.

Work With a Lender

Loan products can help you to sort out cash flow problems, whether you need a short-term loan to purchase equipment or longer-term business loans.

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Cash Flow Management and COVID-19

COVID-19 has introduced a slew of government restrictions and customer concerns that businesses must cope with, and these factors have impacted cash flow.

Cash is critical in the months ahead, so understanding and managing cash flow levels have become essential. We know many businesses need this assistance, so we have outlined some areas and initial points of where to start to make your cash last longer.

1. Start with Your Lenders

Contact your banking provider directly to request assistance and learn about what they’re offering to customers in the wake of COVID-19. The control of your cash position is so critical that, if you’re in doubt, we recommend that you request a suspension of your monthly debt servicing commitments. The cash saved can be deposited in offset accounts or other bank accounts to be used to pay off loans at a later date.

2. PAYG Instalments

For the remainder of 2020, variations to PAYG instalments including credits may be available without penalties or interest. Keep in mind, however, that you will be required to pay your income tax once your 2020 return is due for lodgment.

3. Employment

Talk with your employees about their availability for working reduced hours during COVID-19. Where staff don’t already receive welfare in any capacity, the COVID-19 stimulus package includes options for supplementing lower wage levels like the JobKeeper payment extensions.

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What to Do Next

With reliable cash flow, Carrie and Jess can focus on growing their footwear business and surprising their customers with new and exciting products. What goals might you tackle when you no longer have to face constant, nagging worries about your financial position?

To discuss any of these cash flow strategies and what they mean for you and your business our team at BLG are here to guide you in the right direction. There are many more avenues to explore, so let’s look long-term to get your cash flow under control - talk with us today.

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*This information is correct at the time of publishing and is subject to change.*
Written by Phil Grant . December 08, 2020

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