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    How to improve and manage cash flow | Telstra Smarter Business

    Morris Kaplan
    Smarter Writer

    Morris Kaplan is a former finance and venture capitalist who writes for entrepreneurs and professional services firms

    Morris Kaplan
    Smarter Writer

    Morris Kaplan is a former finance and venture capitalist who writes for entrepreneurs and professional services firms

    Whether you use accounting software, a bookkeeper, or an accountant, here’s what you should be looking out for when managing your cash flow.

    Some businesses are harder to manage from a financial point of view than others. Manufacturing and agricultural production have real challenges. Consider a vineyard, for example, where expenditures are required across vineyard, production process, and storage. Product is typically matured for over two years, creating a lag in the revenue cycle. And then like any agricultural business, winemaking is also prone to seasonal risks.

    Calculator and pen on financial statement
    Benchmarking can be an effective predictive tool. Having seen where there are weaknesses in your business, the next step is to make changes to strengthen those areas. 

    - Morris Kaplan, Former Venture Capitalist

    Manage your flow

    Here, financial solutions require valuations of the business inventory and the wider asset pool to be carried out by experts such as accountants or trained CFOs. Many manufacturing businesses require a sophisticated in-house or external professional to assist the business through their manufacturing and production cycles. Accounting software may be needed, but what is critical is a financial solution that takes into account their special needs.

    Yet, thanks to decades of development by brands such as MYOB, Intuit and Reach, adoption of accounting software is cheap with online applications meaning every business can now afford an online system that organises their financial information.

    The value of predictability

    The use of accounting software, bookkeepers and accountants is about profitability. For sure, bookkeeping and accounting costs can add up when you’re paying a bookkeeper $70 or more an hour and two or three times that for an accountant to do the compliance returns for the business. But in a fast-moving landscape a business owner needs to predict the business cycle and cash flow needs.

    If you’ve been running your business a while, the chances are you have a good intuitive idea of your business-critical numbers. They’re the ones that keep you up at night when they aren’t looking the way you think they should. The problem is many business owners have failed to invest in accounting systems.

    Benchmarking can be an effective predictive tool. Having seen where there are weaknesses in your business, the next step is to make changes to strengthen those areas.

    Cash management tips

    1. Assess billing: Collections and accounts payable systems are operating as efficiently as possible. Invoice promptly, aggressively follow-up on overdue bills and if possible require deposits when making sales. Then hold on to your cash as long as possible by managing your payables. That means take as long as you’re allowed – without incurring late fees or interest charges – to pay your business’s bills. This accounting software can help as it requires little or no bookkeeper or accounting fees, just simple timely entry and production of management reports.
    2. Pay your bills on time: While late payment fees can seem small, over the course of a year they can add up. Make sure your account payments are in order, creditors are managed properly and tax payments do not become overdue, especially GST.
    3. Manage cash crunches: By managing these areas you can minimise business risk and help improve your chances of succeeding.

    This mistake will leave you vulnerable to cash-flow dangers

    A transport business may discover its vehicle breakdown and replacement rates are significantly higher than comparable companies. Its action plan might be to examine its maintenance policies and change the quality-control processes in its servicing department. Who does this? A bookkeeper can do this if the collection of data has been efficient. An accountant will do it but will come at a higher cost.

    You can be making good profits on the reliable sales that will come in, but if that revenue hasn’t arrived in the business’s bank account, the business may not be able to pay the electricity bill. As more money seems to be coming into the business than going out, many business owners don’t give cash management a second thought. And that leaves them vulnerable to all kinds of cash-flow dangers.

    Stay on top

    1. Telephone your creditors to suggest meeting with them: Schedule meetings before payments are due. Don’t schedule meeting after you have run out of cash – move decisively to meet creditors well before any critical date and try to negotiate a change in payment dates.
    2. Look into using less costly suppliers: While it may seem like a hassle having to trialling another product or service if there another way you can save costs, and avoid the extra late payment fees and the bad credit rating you’re already facing this might be a good option for you.
    3. Develop a credible plan: Aim for a realistic assessment, and then focus on how you’ll fix problems. Above all, never promise anything you already know you can’t achieve. Your plan could be, for example, a staged repayment of all outstanding amounts while keeping credit alive for new orders.
    Learn how to keep up with the pace of change

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