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How to maintain a positive cash flow

By Michelle Pittorino

Without regular cash flowing into a business, things can get grim very quickly.


Cash flow is like a person that needs to be managed because you can have the best-laid plans but without guidance, things can go wrong. 

It is the net amount of cash and cash-equivalents being transferred into and out of business.  

At the most fundamental level, a companys ability to create value for shareholders is determined by its ability to generate positive cash flows, or more specifically, maximise long-term free cash flow. 

KPMG Enterprise partner Agnes Vacca gives the following tips for maintaining cash flow

  1. Monitor your cash flow regularly: With modern online accounting software it can be quick and easy to reconcile your accounts.
  2. Cut costs: Are you spending money on goods and services you no longer need?
  3. Cash in on assets: Is there money tied up in assets and other resources that are no longer delivering value to your company?
  4. Get a business line of credit before you need one: You may be able to get a line of credit for a percentage of your accounts receivable or inventory if you use them as collateral.
  5. Lease equipment instead of buying it: Leasing spreads your costs for equipment and you can still claim the expenses for tax purposes.
  6. Stay on top of invoicing: Invoice as soon as the work is completed and don’t be afraid to follow up with your customers on outstanding payments.
  7. Don’t let travel slow your invoicing: Convenient online accounting enables you to send a bill to your customer in transit.
  8. Ask for deposits or partial payments: Especially important on large orders or long-term contracts. It’s not unreasonable to ask for up to 20 per cent payment upfront.
  9. Delay payments to your vendors: Balance early payment incentives against keeping your money in the bank until the due date.
  10. Get business credit cards to cushion your cash flow: But make sure you fully understand the cost of all your credit and funding. Look for cards with rewards such as points you can use toward travel or business purchases.
  11. Know when all the tax obligations are due – and plan for them as interest paid to the Australian Tax Office is often more expensive than other funding.

Vacca says the discipline should start when the business is small and then be expanded as it grows, becomes more complex and planning is more complicated.

“A business should monitor its balance sheet and profit and loss result each month, because without that insight and clear understanding it is difficult to understand the cash position and liquidity of a company at any given time,” she says.

“A company should also analyse how the business performs each month to understand margins, seasonality and trends.

“Looking at the balance sheet and the profit and loss is important, but also imperative is understanding what the key performance indicators (KPIs) for their business are.

“Negative trends must be addressed as soon as possible. The answers are always in the numbers, and if an organisation is committed to monitoring its KPI’s, then they can generally not only predict what’s going to happen by looking at a trend but be able to spot and diagnose a problem.”

Without regular cash flowing into a business, things can get grim very quickly.  

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