Whilst I’ve written this article around Covid-19, reality is that these actions, strategies and principles apply at any time; whether you are experiencing troubling times or not. At any time cash isn’t just ‘king’ – it’s the whole royal family. Cash is like blood to the body; without it, your business won’t survive. Here are some practical and down to earth tips to help you get your cash-flow right – whether the times are troubling, or just good practice at any time.
Get your cash-flow right
1. Know your numbers
This means that your bookkeeping needs to be accurate and up to date and available for the owner to look at in a timely manner. Looking at reports which are 3 months old (or more) just doesn’t work. So, once you know your data entry is being done in a timely manner and is accurate, you need to be actually looking at the figures weekly and monthly. If you don’t already have a good understanding of your financial reports, then reach out for help. Your business coach, bookkeeper or accountant can show you how to read these reports. Remember this; no question is ever a dumb question, so be sure to ask; that’s often how we learn.
2. Debt collecting
Ringing up and asking to be paid is something every business should be doing every week! Unfortunately, only 25% of businesses do this regularly. Don’t wait for the cash to be running low; make debt collecting part of your consistent and regular weekly routine. If you have a staff member doing it, great, but ensure they check in with you regarding their progress. Be flexible; if accepting a weekly smaller amount (part-payment) means someone is more likely to pay you, I’d take that up. Better to get $100 a week, than wait 3 months to get $1300.
3. Setup forecasts and budgets
These are different. A budget is the projection of profit and loss and usually is exclusive of GST. A cash-flow forecast is actually tracking the money (inc GST) you are actually getting in or sending out. Imagine invoices which usually get paid to you in 30 days. Let’s say in April you invoice $10K. In your budget that will show in April but in your forecast that $10K will appear in May when you actually expect to physically receive it. Check out the link below for a free Cash-Flow Forecast Template/Sampler you can download. Budgets and forecasts give you peace of mind and demonstrate financial competence if you are seeking finance. Previously you might have done monthly forecasts; which will remain fine if you pay your bills monthly and invoice monthly. However, if you’re doing things weekly, then a weekly forecast might be more suitable.
4. Manage your payments
Pay what is urgent or important first. If getting your phone cut off will negatively impact your business then make that a priority. For all other items, pay it fairly and share payments around, rather than give preference to one creditor because they scream the loudest. If someone offers a pay on time discount, then that may be a consideration as well. If one of your suppliers ask you to pay early (and you have the cash to do so) negotiate a bit of a pay early discount if possible. Negotiate paying in part and also be willing to negotiate part payments from your customers to control cash-flow.
5. Improve your income
As much as the focus is on expenditure and financial reports in this blog, we cannot forget income. This means not cutting out your marketing. It means redoubling efforts to look after existing customers. It means being even more effective in your sales process in order to get new customers on board with the highest conversion rate as possible. For a business which has been effectively closed down due to social distancing, it may mean thinking outside the box and trying to do things in a very different way. Now is the time for creative thinking and a willingness to change. There is no point having self-pity or moaning about the negatives; instead, focus on moving forward and finding a solution ASAP.
6. Invoice promptly and regularly
Now is especially not the time to be invoicing end of the month, or when you feel like getting around to it. You should be invoicing deposits and part payments where appropriate for a good cash-flow. The moment a job is done, you should be issuing your invoices immediately. At this time too, you should not be offering 30-day accounts, but instead, bring those back. Really if you want to be paid in 14 days, you need to be a 7-day account. If 30 days payment is fine by you, then officially your terms should be 14 days. So many people do not pay on time, so rein that back in. Make sure that where appropriate you have Client Agreements or have provided a quote, so there is no dispute about your invoice when it’s issued.
7. Look at your costs
Monitor your waste. This might be in materials, but also in human resources (time). Are mistakes occurring which cost materials and labour? Are you doing things the long, hard or duplicating way? Do your team spend too much time gossiping or being distracted? For some of your costs, you could shop around and find better rates. I was talking only this week to one of my business coaching clients about where to buy stationery and he was surprised to find that where he buys is one of the most expensive outlets. I know (and have compared) an alternative stationery option which is about 45% cheaper. Whilst $30 here and $80 there may not seem much, once you start picking up all these bits and pieces every week, in multiple instances and then factor that in every week and month, suddenly you find those dollars really add up!
8. Know what stimulus packages are available
There are a great number of options available from both Federal and State Governments. For those eligible, there is $20K Cash Payment. There is JobKeeper which is $1500 per fortnight per employer. There are also employee covering loans which are interest-free for a period of time. Check out my information and some relevant links at this page. Once you know what is available and what you are eligible for, be sure to make it your business to find out how to apply and do so.
9. Negotiate with your landlord or your bank
If you don’t ask you don’t know. I’ve known some banks being exceedingly understanding and really kind to their customers. Other banks, well, not so much. You just have to try. The same goes for landlords; some are reasonable and others might have to be pushed a little harder in line with the handed-down policies from the Government.
10. Take the ATO up on their offers
The ATO has a number of offers in place as well. For businesses which have paid instalment in quarters one and two, they can claim this back on current BASes and get this money refunded. If you have a debt, you can negotiate repayments; possibly rather than paying a $13K BAS bill, you might pay it over the next couple of months and spread that cost out. Additionally, you may ask for remission of interest charges. Again, it comes back to asking and being pro-active about all aspects of your money.
11. Go back to step 1
Once you have put all these actions in place, revert back to looking at your figures, re-jigging your forecasts and ensuring you keep your finger on the pulse. Remember to apply these principles to your personal finances; personal home loans, budgets, any unnecessary expenses etc. If the business owner can cull personal expenses then they need to take less out of the business in drawings.
I’ve uploaded here a simple cash-flow forecast you can download and use; my gift to you. I wish you all the best with the upcoming months. Stay well and healthy!
Check out my Crisis Business Coaching for more assistance.