Managing a small business is hard enough with everyday challenges of employees, customers, suppliers and government.
It’s essential for businesses to be on top of their cashflow for when things go bump in the night. This way they are in the strongest position possible when something doesn't go as planned and avoid ending up in a crisis.
Avoid these Top 5 cashflow mistakes and make sure you always have money on hand.
1. Irregular billing, unclear payment instructions, no written terms and conditions
Clearly communicate your payment terms everywhere, at point of sale, on your invoices, statements and other correspondence. You need to invoice your customers regularly, the sooner the better. Once a month is not regular enough. Weekly is better and daily is best practice. Seek professional help to write terms and conditions for your business that will be enforceable should a Customer decide to delay or not pay you at all.
2. Lack of regular bank reconciliations
Bank statements are a major source of cashflow critical information for your business. If you are not completing regular bank reconciliations you cannot be sure of your true cash position. This needs to be done weekly or at a very minimum once a month. Accounting software packages are increasingly automating this function so spend the time to set it up.
3. Unwillingness to delegate, seek assistance, obtain professional help
Be honest with yourself, if you struggle with paperwork or are not motivated to keep on top of it, seek help. Avoid passing this burden on to friends or family members. A paid professional will complete the job correctly in a fraction of the time, freeing you up to focus on more business critical functions or spending time with your family.
4. Cash leakage – taking money out of the business it can’t afford
Avoid taking drawings out of the business as and when you need money? Be disciplined and pay yourself a regular salary, as you would any other employee, and stick to it. Keep your business bank accounts and credit cards separate to personal accounts? Doing these few simple things will allow you to more readily identify if your business is generating enough money to support the lifestyle you and your family need.
5. Failure to identify or acknowledge when there is a problem
Be aware of indicators that suggest your business has cashflow problems. These include having to make partial or irregular payments to key suppliers. Delays paying GST, super and non-essential suppliers. Frantic collection activity to meet key payments such as wages. Regularly overdrawing bank accounts and dependence on credit cards. If you become aware of these issues, be proactive and speak to your Accountant.
AddCash assists many businesses with their cashflow. Contact us today to find out how we can assist your business.