When we look at business cashflow with our clients, there are some key areas that can become financial time-bombs if not addressed. And we often observe that it is the business operations that create the problem, not the finances themselves.
So what are some common business cashflow problems and what can you do to avoid them.
1. Are you collecting cash?
This probably means that your processes for collecting cash after a sale are poor or non-existent. Don’t blame the accountant. Look at your business processes and what systems you have to ensure that a sale is only closed when the cash is received. Here are some simple steps that can help you collect cash:
- Once the due date passes without payment from the customer, make sure that you send an automated reminder with the invoice chasing up payment.
- Follow up the reminder several days later with a call.
- Don’t let debtors age more than 45 – 60 days. They become very difficult to collect and collection can waste a significant portion of your time
- And if it’s all too much for you to handle, outsource to a local virtual assistant. If you think that they are expensive, how much would not collecting the cash cost your business?
2. How much tax do you owe?
Are you one of those guys that if you see money in your business bank account and just have to spend it? Well, think again. There are a whole range of taxes and employee obligations that you need to cover off each month and quarter. And what is the best way for you to plan for this so you’re not out of pocket?
- Set-up a separate bank account as a tax and employee holding account
- When you review your monthly numbers, ensure that you transfer money from your everyday transaction account into this holding bank account to cover off the following accounts:
- Superannuation payable
- PAYG Withholding
- Income tax payable
- If you need to tap into this account for any reason, ensure that you transfer the funds back immediately when you get the chance
- The money in your bank account allows you to purchase resources for your business. But don’t overstretch and spend money that’s not yours.
Need more information about cashflow management, we look at your business cashflow and GST in this blog post here.