Cash flow analysis: how are you tracking?
The sad fact is many profitable Australian SMEs fail because owners simply run out of money to fund the business.
It seems unthinkable, but poor management, expanding too fast or just plain bad luck sinks hundreds of viable enterprises every year.
“All businesses will suffer some cash flow issues in their existence,” says Paul Roach, director of DELTA Business and Executive Coaching.
“Some you can control, some you can’t. You just have to focus on the things you can control.”
The first step to getting on top of your cash flow issue is having a realistic understanding of the working capital your business needs to operate, then putting a financial buffer to cover unexpected expenses or late payments.
This can be achieved through a line of pre-approved credit.
Next, you MUST use a cash flow budget to forecast estimated ingoings and outgoings and predict where the squeeze points will be when you will need extra cash.
Don’t fall into the trap of using personal savings of credit cards to cover shortfalls.
Try to minimise the time between when you pay for something and when you can recoup your expenses.
And look to cut overheads wherever you can. If you are expanding, examine whether it would be more sensible to lease rather than buy equipment at the outset.
Try to spread incomings and outgoings evenly to remove stress points.
For example, if your business has annual fees, taking monthly subscriptions will help even out cash flow, making it easier to manage.