According to the Australian Business and Family Enterprise Ombudsman 90% of small business owners fail due to a poor cash flow.
There are other factors contributing to the failure but a lack of cash flow is the most significant one.
However, if you live by some basic rules you’ll be able to maintain a healthy cash flow.
Good record keeping
Keep your records clean and up to date by separating your business and personal accounts. This way you are on top of your finances at all times, you will have to spend less time sifting through redundant information and all the important information - such as “how much money is available on the back account - will be available for you at the glance of an eye.
Furthermore, make it a habit to enter all business-related financial transactions to your accounting software at least weekly and add invoices for stock or supplies that you received - outgoing payments - immediately.
Another thing that you shouldn’t underestimate is that accurate record keeping simply give you peace of mind, that you business is healthy and that you can actually trust the numbers.|
Predict how much money is coming in
Often people see accounting as a “one off” effort without long-term benefits. For them it’s like the new coat of paint for the letterbox, it needs to be done but the the mail doesn’t get any better.
However, if you want to improve your cash-flow that’s just not true.
It is a bit of work but once you set up a structure and once you gathers some basic information you will be able to act on the information
Cash-flow management is based on two main factors, what is coming in and what is going out.
And most business owners have a rough idea. However, if you’d ask a Tradie how much money he made during a certain period last year or if he thinks that he might be busy in the weeks after Easter, he might not be able to answer that at all.
- Keep your marketing effective
Marketing is one of the biggest expenses of a company and therefore you should evaluate your marketing and advertising costs at least every 3 month.
You don’t have marketing or advertising costs? That might be even worse, but that is a totally different story.
Again, do some homework!
Think about your audience and what is specific to them, such as their age range, education or interests.
Where do they spend their time, online and offline? Do you always have to find new customers or can you sell to the existings ones (which is much cheaper most of the time)
Evaluate the ways you reach them and think about what you can do better.
Simply said, If you are a Tradie and mainly work for Real Estate Agents and Body Corporates, chances are they do not find you through your facebook page. You might rather want to invest some time and money into designing a great flyer and then sending it to 50 agents in your area.
- Don’t mock around when it comes to you money
Something we hear from almost every single Tradie, Contractor or Freelancer is that they do not invoice straight away and that payments are always due in 30 days.
Even Small Business Owners who usually can rely on better software and that have workplace in place admit that they often issue invoices days after they did the job.
Issue invoices in a timely manner, promptly and correctly, this is a key strategy to combat late payments.
Set payment your own terms and communicate them, so the customer knows in advance the expectation of settling accounts.
Develop a system for identifying and chasing overdue payment immediately. If you want to use your phone’s calendar for that or hire an external service provider such as Hi, I’m Sally is up to you, but get a structure in place. And for the worst case scenario, develop debt recovery strategies in advance.
Making the most of what you have
Or in other words, get rid of your overhead.
Businesses should always search for unnecessary assstes that do not generate an return and then consider whether those could be sold or utilised elsewhere (lease?)
Did you buy a large tool for that one job 14 months ago, and now it sits in the corner of the shop waiting to be used again? Are you still paying monthly subscription fees for that video software you needed for one video last xmas? Maybe it’s time to get rid of it.
The surplus cash can be invested back into the company to stimulate further growth.
It doesn’t sound very nice, but your employees need to be be viewed as assets. It isn’t necessarily a negative mindset to do this. I you think about assets, you need to not only think about cost, but also about maintenance (tools & tech) and upgrades (education & training). Staff member deserve “upgrades” as well.
However, look into the productivity of your staff, procedures and how they are managed. Also look into their pain points and identify unnecessary costs that are related to these issues.
Finally, focus on what you do best. Small business owners tend to try to do everything themselves. However, if you are not a profession in bookkeeping, administration or marketing you might end up generating more problems and costs than necessary.
How Sally can help:
Hi I'm Sally offers a simple Money Chasing Service to chase your outstanding debt. Getting more money into your system and reducing the amount of money you are owed improves the castflow of you business. That leads to more money being available for investments or to pay invoices yourself on time.