4 tips to boost cash flow for your business

Cash is king and managing cash flow is always a hot topic for small business owners. Now that the new financial year is almost here, it’s the perfect time to look back at the last 12 months and reassess what worked well for your business and what could be improved. This can help you to effectively manage and boost cash flow in the new financial year. 

So, why is cash flow so important for any business? 

As we know cash flow is the inflow and outflow of money from a business. Ideally businesses should aim for a “positive cash flow”, which means that there’s more money coming into the business than going out. Unlike profit, which is your total revenue minus the expenses, cash flow is there to effectively manage a business’s ongoing costs and keep the business running basically. A healthy cash flow allows a business to pay expenses, settle debts, return money to shareholders and reinvest into the business. Putting a focus on your cash flow will greatly benefit your business’s long term performance. It’s definitely an important element that every business should invest in for the long term. 

One in 3 Australian businesses say their cash reserves would allow them to survive less than 3 months

According to a survey about the impact of COVID-19 on businesses by the AFR. And 25% of businesses reported that cash on hand was lower than usual for this time of year. Further data suggests that conditions including decreased demand, decreased revenue and COVID-19 restrictions negatively impacted cash reserves over the year.

Are you worried that your business has a cash flow problem? Here are 5 common signs to watch out for…

• You have a low cash reserve and generally have more money going out than coming in 
• You’re often late with your Business Activity Statement (BAS)
• You haven’t been able to pay your suppliers for more than 60 days 
• You frequently change suppliers because of late payments 
• Your suppliers insist on upfront payment

If you answered yes to any of these points, you should consider looking a bit deeper into your cash flow situation and identify where the tensions lie.

Whether your business’s cash flow is struggling or thriving, it’s always good to plan ahead. Especially at the start of the new financial year you want to set your business up for success. 

Here are 4 tips to boost cash flow in the new financial year 

1. Plan your budget for the year ahead 

Best place to start is to look at last financial year numbers to audit your revenue vs. expenses. Then think about the year ahead and what external factors, such as COVID-19, could impact your business’s performance. 

Are you expecting a similar turnover and a similar level of expenses? In this case last year’s number could as well become your forecast for the next financial year. 

Alternatively, are you planning to grow or expand your business? If so, what’s required to achieve this growth and how much will it cost the business? Make sure to also factor in how much additional revenue you will need to make in order to compensate for the additional cost in business expenses without compromising your cash flow. 

Also, in case you haven’t got one yet, get yourself an emergency fund for contingencies. If last year taught us one thing, it’s that there will always be contingencies that we can’t possibly foresee. 

2. Optimise your invoicing process

The best way to boost cash flow is to ensure a steady amount of money coming into the business. 

One of the best strategies to get your clients to pay early is by providing them with an incentive to do so such as a discount for early payment for example. On the other hand you can also think about penalties for late payment to encourage your clients to pay on time. 

In addition, you could consider updating your payment terms as long as these go in line with legal requirements, which you can chat to your accountant or financial adviser about. For instance, you could look into introducing 50% upfront payment for orders above a certain amount to ensure a healthy balance between occurring costs and incoming money. 

3. Cut unnecessary business costs 

As part of your budget you will have also looked at your recurring business costs. Are these all still accurate for the new financial year? If so, are they all necessary and business critical or are there any costs that could be cut? Be creative about ways to cut business costs. Think about new technologies you could leverage to automate certain processes or tasks. Or do a little market research and get a few supplier quotes to renegotiate prices with your current suppliers. 

In terms of managing your supplier payments, make sure you make the most of the payment terms. While you’d always want to avoid late payments, you should keep the cash in your account for as long as you can to maintain and boost cash flow. For example, after receiving the supplier invoice you can automate your payments for the due date so you don’t have to worry about them later. Your payments will not only be on time, but you’ll also maintain a healthy amount of cash in your account for as long as you can. 

4. Get short term funding to fill the gap 

Getting additional funds to boost cash flow can be a valid strategy if the benefits outweigh the cost of the loan of course.  However, getting funding can sometimes be difficult for small businesses as they often don’t qualify for the lending criteria that many of the bigger financial institutions require. In fact around one in eight SMEs who sought additional funds over the last three months were unsuccessful in obtaining the funds, according to ABS data.

That’s where Lumi comes in. We’re a trusted online lender that provides easy access to flexible business funding from $5,000 – $300,000 on 6 to 36 month terms. We offer both business term loans as well as lines of credit depending on your personal needs. Check out our recent article on how to choose between an unsecured business term loan and line of credit here. 

If you are considering business funding to boost cash flow, we recommend that you speak with one of our team members to assess whether your business qualifies for funding and what loan product could be the right choice for you. 

Alternatively, you can also apply online in less than 5 min here. All you need for our business loan application is your ABN/ACN, min. 6 month in business and min. $5K monthly turnover. In case you’ve got any questions, feel free to call us on 1300 00 5864 or send an email to support@lumi.com.au. 

Your Lumi team