Your cash flow is the money you have coming in from revenue and going out for expenses. Good cash flow management will make sure you always have money available for paying your expenses when they're due.
Cash flow is critical
It’s essential that you understand your cash flow cycle, which boils down to whether you’ve got more money coming in than going out. If you have more cash going out, you’ll have to address it quickly.
What you don’t want to do is fall into the trap of being so busy during the start of your business that you end up running out of cash and are unsure why, so to help you do this, we’ve provided some helpful tips.
Keeping track of cash flow in and out
It’s best to establish a system to track the flow of cash, such as accounting software that tracks transactions in real time. If a spreadsheet or manual system works efficiently for you, that’s great too.
However if you're at a very early stage of your business, or haven’t started yet, one of the first tasks you should do is separate out your personal and business expenses. This will make your business finances easier to manage and will set you up for success.
If you’re a new business, it’s important to check not only sales, but also expenses, especially when more and more costs are through online subscriptions or direct debits.
It’s important that your tracking process can monitor:
- Whether sales have been stable, are on target for growth, or have flattened out. If there’s a seasonal impact, then it’s important to develop tactics to smooth out the drop and make the most of peak times.
- Which products or services are the most popular? Seek to promote and focus on these and consider dropping those that don’t sell as well.
- Which expenses are costing the most, and to decide if they’re all necessary. How can you reduce any initial expenses while maintaining the quality you offer?
It’s a great idea to get help to analyse what’s going on, especially if your business is in its early stages. Your accountant is a smart option, and NAB offers support through its business bankers too. Get in touch with us to discuss your cash flow circumstances.
Ways to increase profitability
For most businesses, the easiest way to improve profits isn’t landing the next big client (though it can be). It’s improving the little things, such as:
- Increasing prices by 5 percent (or a small enough margin that doesn’t cause alarm).
- Collecting money owed to you faster.
- Investing spare cash to gain maximum interest. NAB’s Business Cash Maximiser Account is an option for this.
- Checking that you’re not paying too much for overheads like power, the Internet and office supplies. These can be small amounts but they add up over time. Now that you’ve been in business for a time, you can probably look to renegotiate some of your earlier agreements.
Is more cash needed?
There could be any number of reasons that you might need more cash after you’ve launched. For example, sales and expenses haven’t been what you forecast. Or your business is going so well you can’t keep up and need to expand faster.
We can help in a number of ways. These include:
- a Business Overdraft on your NAB Everyday Business Account if you only need a short-term cash injection or a NAB QuickBiz Loan
- NAB’s Vehicle and Equipment Finance if you want to scale up faster than you thought
- NAB’s range of Business Loans to suit your circumstances.
Finally, it’s easier than you think
Decide what method is best for you to keep tabs on your cash cycle, and make a commitment to keep a close eye on your bank balances on a regular basis. Upgrade from manual systems to accounting software systems that give real time data if you need to. Also make sure you have your banking set up how you want it and get the information you need to stay on top of your cash flow.
Once you’re getting an accurate cash picture of your business, you’ll be able to make better decisions to help lock in long-term success.
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The information contained in this article is correct as of July 2018 and is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.