Understanding cash flow challenges in more detail is an important first step in identifying ways small businesses can manage them more effectively.  

Late payments and cash flow crunches:  

Sounds obvious, but this is a key red flag in changing times. Almost half of all payments made to small businesses are late, creating a flow-on effect for small businesses. Even a small reduction in these late payment trends could have a big impact on small businesses.  

Get your invoicing right. Invoicing is part of good cash flow management. Once you’ve delivered a product or service, send invoices immediately. If you are providing a service consider requesting a deposit upfront, or part-way through. 

Be direct and fair without being a pushover, and don’t be afraid to take more formal action if you need to. Keep a close watch on your accounts receivable turnover at all times. If it’s trending up, it might be time to step up your efforts at chasing payment. 

Your cash flow is only as good as your accounting and reporting so stay on top of it. Make sure your accounting information is updated regularly so you can see the financial state of your business at a glance. 

Rising expenses and cash flow stress: 

As small businesses grapple with the challenges of operating in a post-pandemic, increased interest rate environment, a range of external factors is also taking their toll on small business cash flow. 

Inflation is impacting economies the world over and we’re currently experiencing our highest rate of inflation in more than 30 years. Supply chain disruptions and heightened commodity prices have contributed to rising costs for small businesses.  

So now is a great time to review your expenses and identify where you can reduce your costs. Look for alternatives or renegotiate deals with existing suppliers, throughout the business. Review and re-evaluate subscriptions as well as variable costs such as advertising and marketing to make sure you’re getting an appropriate return on this investment. 

For many small business owners and their employees, this will be the first time they’ve experienced managing or working in a business during a time of inflationary pressures. And, the effects are already being felt. As this inflationary trend continues towards the end of 2022, pressure on small businesses is only going to mount. 

Seasonal slowdowns and cash flow uncertainty: 

The third edit we recommend for your business is to study the data around your seasonal trends. Revenue slowdowns at certain times of the year translate to high rates of cash flow stress.  

A good accounting system will offer information on expectations based on historical data from your own trends. Therefore, it’s your history in the making, informing current and future decisions with data specific to your business.  

Put together a budget. Work with your accountant or bookkeeper to put together a budget that allows you to: 

  • Predict cash flow. 
  • Anticipate crunches so you can better plan for the difficult months. 

And finally, keep your accounting simple. A reliable accounting system will help you track and report on key business metrics, including: 

  • Referencing aged accounts receivables. 
  • Identifying operating margins. 
  • Tracking inventory turnover. 
  • Manage business and personal finances separately. 
  • Build a cash reserve, providing the cushion you need to manage unexpected events.  

Xero can help you manage all the points mentioned here, but there’s always help at the ready with Yield. Even if you are outsourcing the formal accounting, quality accounting software will help you forecast your cash flow for planning purposes. 

Based in the Barossa, we are a trusted local team. Led by experienced advisors Matt Whitelum, Amanda Westbrook and Brett Johnson, our team is committed to maximising your future financial health. 

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