Top tips to keep cashflow on track

Ask any business owner about the challenges they’ve faced and you can bet that managing cashflow is right up there. 

In May last year, a study from Wakefield Research surveyed 500 Australian businesses and found that 63% had experienced cashflow problems more than once over the previous 12 months.

As the pandemic has shown, you may not be able to predict or pre-empt risks to your business’s bottom line, but being aware of the risks to cashflow and how to manage them can help get you back on track quickly and efficiently.

Here we look at the types of risks your business may face and offer tips on how to prepare for, and deal with them.

Risks to cashflow

Starting up: The only certainty in business is change, and this is even more relevant for newly established businesses. Product launches may be more expensive than anticipated, cashflow may take longer than you’d like to settle or your market may be more niche than expected. Cashflow during this initial set-up phase is crucial, and a steady income stream will ensure you have the ability to pivot if you need to. 

Seasonal cycles and low sales: It doesn’t matter how awesome your stock, products or 

services are, most businesses will experience a downturn in sales at some point. It might be that your business is seasonal and subject to sales cycles, or simply that the need for your particular goods or services slows down. 

Business debt: You may find you’ve over capitalised when setting up your business, or while extending a range of products or services. This can result in business debt, but it’s not the end of the world. A lot of businesses, particularly seasonal, can run with negative cashflow until sales even out, and outlays are then absorbed by positive cashflow. 

Ways to manage cashflow

While cashflow can be difficult to predict, particularly in the early stages of building a business, conducting thorough profit and loss audits at every stage can help you prepare in future. Make sure you pay attention to the lows, as well as the highs, and keep detailed records of expenses. You can also use tools such as a cashflow predictor to get an accurate picture of your finances.

Here are some ways to manage or supplement your cashflow when times are tough.

Standby funds and credit: Some businesses may not be in position to have standby funds, but an emergency cash reserve can be invaluable if cashflow starts to dry up. Business credit cards and short-term loans can also be part of a support plan, and some business cards, such as the American Express Platinum Business Card, have no pre-set spending limit. The American Express Platinum Business Card has the added benefit of up to 55 days to pay for purchases, allows you to earn points and use them to pay off purchases or turn them into gift cards.

Cut down on employee travel expenses: Cards such as The American Express Business Explorer Credit Card is are a great solution for larger businesses when looking for ways to cut expenses as there’s no fee for up to 99 employee cards, up to 55 days interest free, and for those businesses that require employee travel, you can redeem points earned for flights, accommodation or car rental. The American Express Qantas Business Rewards Card allows businesses to earn Qantas Points for purchases which can then be used to help offset travel expenses. This card also offers up to 51 days to pay for purchases, helpful in limiting strain on cashflow so that you can go focus on taking opportunities to grow your business.

Monitor your days’ sales outstanding (DSO): The longer it takes your customers to pay your invoice, the longer you’re waiting for cash and the slower the cashflow. Reduce payment times on invoices or offer incentives for early payment of invoices to drive that cashflow. As a customer of a supplier, you can make this work for you – ask for your invoice terms to be extended, so that cash stays in your business for longer. Some business cards, such as the American Express Business Explorer Credit Card,  can also assist in giving you up to 55 interest free days to pay for purchases, which helps you make more of your capital and give you a little extra breathing room.

Offset seasonal downturns: If your business is seasonal or experiences off-peak periods, keep detailed records of when this downturn occurs, and use this intel to better prepare for any looming reductions in cashflow going forward. That might mean limiting stock buys in the lead-up to slow times, pivot advertising goals to try to reach new customers, or use the downtime to upskill. You could also offer discounts during slow times to drive sales and support cashflow, or put together package deals to keep inventory turning over. 

Overall, while it can be a little daunting to find the right balance that works for your business, there’s plenty of ways to prepare for downturns in trade, keep on top of cashflow and make sure your business stays in the black. 

Read now: Four easy steps to cashflow forecasting