How do you ensure your company’s chances for survival? More than that, how do you set your business up to thrive?

All signs point to cash flow. Regardless of the nature of your business or what you offer, managing your cash flow plays a key role in growing your business. With increasing inflation, rising interest rates and complexity across sectors, mastering this area has become more critical than ever before.

But with 92% of Australian businesses struggling with cash flow, how do you tip the odds in your favour? Here’s all you need to know about mastering cash flow and how to get started.

What is cash flow?

To enhance your cash flow, it’s essential that you understand what it means and what good looks like.

Cash flow refers to the cash coming into the business versus the amount going out. If a business receives more cash than it pays out, it has a positive cash flow. If it pays out more than it receives, that’s what you call a negative cash flow.

Some businesses, particularly seasonal ones, may find it more challenging to maintain positive cash flow. When you’re generating peak incomes during specific periods of the year, you need to be more careful with your cash flow throughout the off-peak season.

While the risk of shortfalls exists for all kinds of businesses, keep in mind that these can result in:

• Delayed supplier payments
• Inability to fulfil employee obligations
• Missing loans or finance payments
• Failure to meet tax obligations

Depending on the severity and duration of the shortfall, this can lead to suppliers discontinuing their services, imposing penalties for late payments, failure to meet loan obligations, and ultimately, business failure.

Therefore, as a rule of thumb, positive cash flow is necessary for every successful business. Without it, you’re putting your long-term stability at risk.

What are the benefits of cash flow management?

While the concept of cash flow is straightforward, it’s not necessarily easy. Even healthy revenue and bottom-line profits don’t necessarily guarantee cash flow, but it all comes down to an impeccable attention to detail.

Here’s what that means:

• If a business has a substantial amount of its revenue tied up in accounts receivable, it may face cash shortages when paying expenses and loans.
• Loans or finance payments are not reflected in the profit figure, but actual cash is required to meet these obligations.
• Seasonal businesses, such as those in hospitality, primary production or in tourist areas, may receive the bulk of their income and cash during specific periods. This calls for careful cash flow management to support the business throughout the rest of the year.

If you’re not careful, cash flow problems can lead to significant issues for your business. However, when done correctly with the right partner, cash flow efficiency equips you to:

• Pay creditors on time – Timely payments to suppliers or financial institutions prevent penalties, foster improved relationships, and potentially lead to better credit terms and access to additional finance when needed.

• Expand and seize opportunities – With reliable cash flow and sufficient funds to meet operational needs, gain the confidence to invest in new equipment or pursue opportunities that enhance growth, efficiency, and profitability.

• Expedite profit returns – Have certainty about future cash needs and the amount that can be returned to you, enabling you to use the funds for your benefit.

• Reduce stress – Removing the worry about meeting financial obligations on a weekly or monthly basis allows you to focus your time and energy on other areas that contribute to your business’s success.

This empowers you to stay on top of day-to-day operations while giving you the confidence to prepare your business for what’s next.

How can businesses improve cash flow management?

Now that you know what good cash flow looks like, here are key strategies that will help you improve cash flow management:

1. Measure and forecast cash flow – Define your key metrics and implement robust accounting and reporting systems to analyse them. This helps you track and forecast cash flow — equipping you to prepare and respond as necessary.

2. Optimise your accounts receivable – Establish clear payment terms and credit policies for your services, have systems in place to monitor these, and follow up on overdue payments. This helps facilitate faster payment collection and avoid shortfalls.

3. Monitor inventory levels – Cash flow management is often tied to your day-to-day operations. Make sure to stay on top of your stocks and avoid any excess that tie up cash which can lead to losses.

4. Review business costs and overheads – Continuously evaluate expenses to eliminate unnecessary costs and operate as efficiently as possible, especially during times of rising costs.

5. Evaluate banking products – Regularly assess your business’s banking products, loans, and other financial obligations to ensure they remain competitive and suitable for your specific requirements. By exploring different banking options, you may discover better terms and conditions that can positively impact your cashflow.

Enhancing your business’s cash flow management not only helps mitigate issues brought by shortfalls, but also creates opportunities for greater success. By optimising your cash flow, you gain certainty regarding incoming and outgoing payments, and equip yourself to ensure your business’ survival.

What’s Next

Don’t underestimate the power of cashflow management on the success and longevity of your business. While maintaining a positive cash flow can be challenging, it’s not entirely impossible. With the right team, tools, and strategy, you can enjoy the benefits of positive cash flow and equip your business with the necessary foundation to thrive in today’s environment.

With Nexia Edwards Marshall NT, gain the expertise, guidance, and support needed to optimise your cashflow, reduce financial stress, and position your business for sustained growth.

Learn how Nexia Edwards Marshall NT can help set you and your organisation up for success. Contact your Nexia Edwards Marshall NT Advisor to get started.