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Cash flow management an unknown in many businesses

12 December 2019


Of 200 businesses recently surveyed 65% of the owners said they were worried about cash flow and a third of these had no idea of how much capital was invested in the business.

Relate this revelation to the fact that 46% of the businesses surveyed rated cost management as their top priority for the next 12 months and 26% said they actually needed to reduce costs, it’s obvious a disturbing number of business operators are well nigh clueless on cash flow maintenance and will therefore be out of business sooner rather than later.

Heightening Macks Advisory’s concern about this situation is data showing more than six out of 10 Australians in business regularly or occasionally resort to personal financing – for example credit cards or personal loans – to help sustain their businesses.   

Consider the above information in the light of National Australia Bank’s (NAB’s) “Rethinking Success” white paper stating that one in six Australians are thinking of starting a business, and a prognosis for these potential newcomers running a successful business cannot be good.

With such a worrying percentage of experienced business operators still having no idea how to control cash at bank to cover costs, the percentage of people new to running a business, with no appreciation of the ground rules for monitoring cash flow - or worse having no apparent interest in learning and applying them - must be seriously high.

Only 12% of respondents to the survey referred to above said they weren’t planning to invest in any form of technology in the next 12 months, with 54% wanting to invest in new software solutions and 38% saying they will be looking to buy “new collaboration tools”.  Given as previously stated that 46% of respondents declared cost management was a priority concern, it begs the question of how many of them even know or care enough about monitoring cash flow for this concern to be of any use.

Whether you’re already operating a business or thinking of starting one here are a few of the basic things you’ll need to know and do to master cash flow issues.

Start right

For a start you should know how much cash your business needs daily to function effectively.  Total outgoings (rent, wages, utility costs, other bills and wages) will obviously vary, but whatever this total is at a particular time of year, it needs to be reconciled with revenue the business can reasonably be expected to be generating at that time.

With that calculated, budgets that will make sense can be formulated, results can be measured against those budgets, and realistic forecasts made of what cash the business will need, and when it will need it, to stay afloat.

Begin by setting cash flow target forecasts that can be updated weekly.

Enforce payment terms

Invoice for work completed, goods sold, services rendered as soon as they’re done. Invoices should have payment terms clearly stated. Due payments should be monitored, and pursued immediately they are overdue.  As a business operator you should always seek to negotiate the longest possible terms for accounts payable and where a supplier, for example, is keen to remain doing business with you negotiation is frequently possible.

Ensure paying you is easy

Ensure you run a business account.   Keep money for your personal use in a separate account.  For example, mixing funds needed for a business with money needed to run a household is a recipe for financial disaster.

The business account should be supported with appropriate infrastructure than allows people who owe the business money to pay it quickly and easily by way of a variety of secure options that include online payments, bank transfers and credit cards.

Retainer packages

Retainer packages could work well for you, particularly in maintaining and forecasting cash flow, and especially if yours is a service-based business. These packages usually incur a monthly fee that is paid up front by clients/customers to retain a service promptly as needed and are also frequently offered with a discounted rate for payments on t time.

Staff training

Good staff is often hard to retain or recruit.  Look therefore at ways of making training opportunities available and attractive (with incentives) for good workers.  As your business grows staff should be trained to closely monitor accounts payable and receivable, to calculate credits and debits and be able to report accurately to you at any time the amount of cash immediately available to the business.

The challenge of change

It can reasonably be argued that change is the only constant in business.  Changes perceived and unseen, controllable and uncontrollable will periodically alter the number of a business’s customers from unpredictable time to time.

What that can mean is it’s folly for a business owner to forecast the business’s future from one month to the next in the belief customer numbers won’t change.  Irrespective of the size of a business the operator should never stop trying to build new pathways to it for customers.

Organisations reliant on a few substantial customers can be particularly at risk if even one of these decides to take their business elsewhere.  From start up never stop looking for new customers/clients.    


Disclaimer: The information contained in this webpage is general information and does not constitute legal advice. Nothing in this webpage is or purports to be advice. If you do need advice, then you ought to seek and obtain appropriate personal professional advice based on your personal circumstance.

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