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managing cash flow

Managing Cash Flow for Small Businesses

Every business, no matter how big or complex, must follow certain steps in order to be successful. One of the key steps in growing your small or micro business involves managing cash flow by tracking and improving your finances.

Cash flow refers to the incoming (profit) and outgoing (expenses) movement of cash that keeps your business running the way you want it. If you own a small business, using simple bookkeeping software is key and is a reliable way to track your financial commitments and help keep you compliant. It is important that you plan carefully whilst monitoring your cash flow for your business to run smoothly. Below, we will share some essential tips for managing cash flow in your business.

Open a business bank account

Depending on the type of your business you may or may not be required to use a business bank account. Companies, trusts and partnerships in Australia must have a business bank account for tax purposes but sole traders aren’t legally required to have a separate business bank account and you can just use your personal one if you wish. However, opening and operating a separate account for your business makes it easier to track your income and expenses and the transactions won’t get lost in your personal spending.

Analyse your cash flow

A good cash flow analysis makes it easy for you to work out exactly how much cash you have on hand. It will also help you identify factors that may be preventing you from improving your cash flow, such as where you are overspending. By merging all your cash flow information and storing it in the one place (rather than have it spread over multiple documents, folders and software. Or, if you’re like some people, on your kitchen table), you can have a thorough understanding of the amount of money coming in and out, as well as the dates of upcoming cash expenditures, so you know exactly when you have to pay something and won’t get caught out with overdue fees.

Just having the knowledge to hand of expected income and upcoming bills can alleviate some of the anxiety that comes with running a business.

If you’re a sole trader, learn how to get your cash flow analysis up and running quickly.

‘Revenue is vanity, profit is sanity, but cash is king,’ Unknown.

Start by mapping your bank statements as well as compiling a list of your customer payments, service fees, interest earnings and other sources of income. Next, create a list of your expenses, including materials and supplies, machinery, stock, salaries and wages, taxes, rent, office supplies and all overhead costs.

Get into the flow of bookkeeping

There are several electronic bookkeeping software products available that simplify the process of recording transactions, updating ledgers, calculating GST, generating invoices and preparing financial statements. And simple is the best way because it doesn’t need to be unnecessarily complex or take up any more of your much needed time.

You can ask your accountant or advisor for their recommendations and remember to choose a software that complies with Standard Business Reporting.

Good bookkeeping software is key and is reliable for:

  • Creating financial reports that tell you how much your business is worth at a specific point in time and how much monthly profit you’re making.
  • Keeping receipts and payment records of every expenditure by your business.
  • Collecting the financial information you need to file various tax returns, BAS and other required reporting.
  • Summarising your income and expenses on a periodic basis.

Prepare a budget

If you are a new business and unsure of the actual figures of what you are likely to spend or make, you can prepare a budget to help you better manage cash flow. A budget is a document that outlines your estimated income and expenses for any length of time. This will help you project and anticipate obvious problems and guide your spending for that set period and you can make really informed decisions that can fall back on some data. Here is our guide on creating a cash flow budget.

Budgeting can be quite a tricky (and often boring) skill to master but it’s one of those areas that pays off in small business. We even recommend making multiple budgets that outline varying scenarios, so you can be prepared for all situations. It’s also quite important to keep making tweaks to your budget throughout the year, so you get an accurate overview and realistic spending pattern.

It’s important to get really accurate with your finances because ‘Businesses tend to either overestimate or underestimate,’ said Peter Strong, executive director of the Council of Small Businesses of Australia.

In addition to the tips above, we suggest that you always implement careful monetary calculations and risk management strategies. This will help you keep your business running smoothly and avoid any cash flow problems that could snowball out of control.

Start managing your cash flow right now with Cashflow Manager.

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