According to the National Australia Bank, business confidence has remained flat for the third straight month in a row and with confidence even worse in the two previous months, it remains overall well below average.
With so much global volatility at the moment, there would appear to be little prospective of confidence rising much over the coming months and this level of uncertainty is likely to translate into a lack of investment and spending. This is not great news for businesses, especially small ones, many of whom are already doing it tough at present.
The need to manage cash effectively therefore is now more important than ever, so here are five top tips for doing this:
Determine why cash is low
The first thing to understand is what is happening and why. One approach is to pull out your bank statements over the past 6-12 months and note down the ending balance for each month. Look at the trend – if you have been fairly stable over this time, what has changed recently but if you have been in gradual decline, the time to act is now. A cash-flow forecast also really helps here.
Maximise income
Keep track of what you are owed (debtors) and actively follow up to collect as much as you can even if just part payments. Review your existing stock and see what could be converted to cash immediately. Consider offering customers preferential pricing options for upfront cash payments. Another possibility is to consider what is known as ‘Debtor Finance’, ‘Invoice Finance’ or ‘Receivables Finance’. In this scheme a finance company lends money using client invoices as collateral. The lender pays the business a percentage of the invoice totals upfront, which the business repays in a given timeframe for which there is necessarily a fee and interest payable.
Minimise outgoings
Use whatever financial tool you use to understand your financials (Xero, MYOB, Quickbooks or Excel – if you don’t have one, you need one!) and divide your expenses up into three groups: Staff Costs (wages, super, payroll tax, etc), Fixed Overheads (things you can’t easily or quickly change, e.g. rent, rates, lease payments, etc) and Variable Overheads (phone bills, marketing, training etc). The last one will be the easiest to reduce costs on but if things are really serious, you may also need to look at the Staff Costs as they will typically be your largest outgoing. Investigate cheaper suppliers but be careful not to compromise on the quality and value of what you provide.
Communicate with creditors
If things are so tough that you will have problems paying your bills, then make sure that you communicate with those to whom you owe money. You may be able to negotiate new payment terms, payment plans or even reduced charges. This is especially true if you have a tax debt – always talk to the ATO. They are very understanding of companies doing it tough and who communicate upfront; don’t expect much sympathy if you default without notice.
Prepare a cash-flow forecast
Companies who do this tend not to experience major cash-flow issues since a well-developed forecast will provide early warning of any potential problems. This needs to necessarily consider when the cash associated with the invoices will actually hit the bank account so delinquent payers should be factored in! Bear in mind that unlike a P&L, your cash-flow will include GST, BAS and IAS payments and should always be reconciled with your bank statement at regular intervals. You don’t need to manage this to the nearest dollar but better to be conservative to avoid surprises.
Ian Ash ACC, AInstIB
Managing director
OrgMent Business Solutions – ombs.com.au
