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Five steps to improve your small business cash flow in 2012

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2012 is the year of the dragon, widely considered to be a very successful one for those in business. But be warned: dragons can be flamboyant creatures and spend every cent they earn.

Whether or not you subscribe to Chinese horoscopes, the advice can ring true for most small businesses in Australia. Small business owners need to find smart ways to manage the time lag between having to pay suppliers and incoming money from sales.

Through a combination of clearer processes and the use of new technology, small businesses can manage cash flow simply and more effectively. The following are five steps to improve your cash flow in 2012:

1. Talk to your suppliers

Supplier relationships, as with customer relationships, can often be very beneficial when it comes to cash flow. Some suppliers offer early payment discounts, which can save you a lot of money.

In leaner times, it’s also worth having the discussion with your suppliers about payment terms or a short-term credit extension. Large firms such as utility companies are unlikely to be flexible, but you may be surprised at how open your long-term suppliers can be – providing you give them advance notice – to renegotiating terms. 

2. Embrace online accounting tools

Online accounting tools are an excellent way to manage cash flow. Systems can be configured to send alerts when outgoing payments are due, automatically invoice customers, and check if payments have been made. They can create and update cash flow forecasts based on real-time figures from daily bank feeds.

Online accounting also means you can access your accounts from your mobile device, wherever you are. Being on the move means no longer being out of touch with critical invoices and bank balances. Accessing your accounting system from a mobile device means you can be on top of your cash flow, anywhere, anytime.

3. An apple a day

One of the simplest and most effective ways to manage cash flow is to spend a few minutes on it every day. Leaving everything until the end of the week or worse, the end of the month, can lead to missing creditor payment deadlines, incurring late penalties, or overlooking late incoming funds. 

Rather than suffering a classic cash flow crisis, a little bit of work each day can keep your finances in check. Web-based tools and mobile devices allow owners and managers to carry out finance housekeeping whenever and wherever they have a few minutes to spare.

4. Develop regular processes

Accurate cash flow depends on having the right information. It’s worthwhile developing good habits or even a formal process around inputting your company’s financial data such as bills, invoices and relevant due dates. Avoid losing or forgetting this information and include it in your daily accounts housekeeping.

5. Look at your creditors

While many companies can be very focused on debtor accounts (incoming funds), few have clear internal processes to track and manage creditor accounts (outgoing funds). We all know that debtor accounts are vital – it’s how you make your money – but outgoing funds are often more controllable for small businesses.

Spend a little time reviewing your creditor accounts and how they are paid. It can make a huge difference while you’re chasing your own customer invoices.

Chris Ridd is managing director at Xero Australia. Xero is online accounting software designed for small business and their advisers.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.


Published on: Friday, February 03, 2012

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