In Australia, small businesses and family enterprises account for almost 98% of all businesses in the nation! While there are so many viable businesses, there are still quite a few that struggle with cash flow problems.
Does this sound like your small business? Would you like help managing cash flow? Then here are the 5 top cash flow killers and what you can do about them.
1. Every improvement counts
One of the biggest mistakes that business owners make is thinking that one major change in their business will turn everything around.
Rather, it is easier to focus on smaller changes that can be easily implemented. These include sending invoices straight away, making sure that customers pay invoices on time and increasing your prices. By making these small changes you will see a large improvement in your business’ cash flow, but also in its operational management.
2. No Systematic Processes for Managing Accounts Receivable and Inventory
According to CFO On-Call, this problem “usually leaves hundreds of thousands of dollars locked up, and this can often lead to large losses.”
An example of a systematic process would be effectively communicating between the sales, customer service, finance and accounting departments. Optimizing these communication channels will provide much-needed clarity and result in fewer mistakes. Effective management of accounts receivable would only be possible if the calculation process is accurate, check InvoiceSherpa for an efficient and reliable calculation.
3. No Budget or Forecast
When running a business, a budget and/or forecast is a must. CFO On-Call says “this aspect is so important, yet it is nearly always overlooked.”
Prioritizing a budget and forecast is key in business success. Not only does the allocation of your funds provided you with confidence and security in your financial year, but it brings a sense of peace of mind when it comes to your business’ finances.
4. There Is No Cash Flow Management
If you don’t have cash flow management, how are you going to avoid negative cash flow in the first place? You might think you’re making a profit, but in reality, you could actually be in the red.
This can easily be solved by working with your bookkeepers and tax accountants. Too often, they don’t really provide financial clarity either, so it’s always a good idea to have good communication with them.
By setting up cash flow management, you’ll better understand how your business is making money and how to grow it appropriately, all without risking too much money. Make sure that every month, you always review your profit and loss reports, as well as balance sheets.
5. There’s a Lack of Control over business operations
It is important to have systems put in place that have been specifically formulated to help protect your business, such as decisions and behaviours that result in cost.
There are three types of effective controls that can be put in place. Visual controls, which include checklists, dashboards, and budgets. Procedural controls that focus on the flow of money in your business, and embedded controls such as standardized contracts and automated data backup.
By investing some time in the development of putting these controls into place, you protect your business from taking huge financial hits in the future.
Solve Your Cash Flow Problems With Our Tips
Running a small business takes lots of hard work and money. Don’t let your efforts go to waste within a few years just because you have cash flow problems. Instead, use the above knowledge and tips to improve business and increase the profit that you see.
