This is especially true for small business owners in Australia, as economic uncertainty and rising operational costs are creating pressures to the average business owner.
Making the wrong moves can bring your business to the brink of collapse or bankruptcy. As such, it’s important to be disciplined with how you implement your decisions, especially the ones rooted in the movement of cash.
The good news is that cash flow challenges can be corrected by setting the right system and framework in place. While each business is run fundamentally differently, some core concepts remain the same across several industries and business spaces.
If you want to improve your business operations and keep cash flow moving, then you’re in the right place.
We’ll pick apart five viable strategies to help keep your finances in order as you navigate running a business amidst economic turmoil.
Let’s jump right into it.
1) Use Expense Management Tools
Tracking your cash flow can be difficult if you’re relying on sparse documentation to keep track of your inflows and outflows.
You could easily lose track of your income and expenses if you rely on manual record keeping, which can spiral into miscalculations in your cash flow and potential added strain on you and your finance team.
The straightforward solution to this is to invest in expense management tools to do the bulk of the process for your business.
Expense management tools allow business owners and finance teams to track their spending in real time. This tool can be set up in a way to automate costs and spending, eliminating extra man-hours spent on tracking the expenses themselves.
On top of that, these tools can also help budget and forecast your finances to ensure that you’re using cash effectively at present and are also making the right decisions to keep you financially balanced for the future.
In essence, expense management tools help reduce the risk of businesses encountering manual oversight when running the business. This, in turn, helps minimise unnecessary expenses and helps the business acquire an accurate financial picture of its spending, which is useful amidst economic pressures.
If you need leads for your next expense management tool, look through this article by OFX for some potential leads.
2) Tighten Your Payment Terms
One of the most common ways small and medium-sized Australian businesses fall short on cash is because of a high receivable amount. When you’re getting constant business but on terms, you may lack the funds to run your business when you need it urgently.
This can restrict your business’s ability to cover operating costs, causing you to need to take out a loan or find other ways to cover the costs.
If left unchecked, this can be problematic. Your business may not have the funds to sustain its operating costs, and you could be forced to take out high-interest loans. This decreases the value you’re getting from your client’s payments, which in turn can keep you from reaching your financial goals and attaining steady financial progress.
One way to improve your receivable system is by tightening your invoice and payment terms with your clients. Ensure that you send your invoices promptly and enforce contractual obligations to your clients. They should ideally pay upfront, not making you wait too long for your business to be paid. If required, you can use a legal service like LegalVision to set up favorable terms.
If it’s difficult to get your business partner to pay promptly, you can consider changing your payment structure to ensure that you’re still getting money when you need it. You can, for instance, consider incentivising your clients to pay early with small discounts.
If the delays are from your end, you can automate your invoice and set up reminders to ensure that missed payments are promptly followed up on.
By enforcing these practices, you can develop a more predictable financial position—giving you a better shot at surviving the squeeze in Australia’s volatile business landscape.
3) Improve Cash Flow Visibility
Another way SMEs can raise their odds of survival is by improving their cash flow visibility.
This essentially means utilising a system that makes it easy for you and your team to determine your current cash position. Instead of relying on outdated reports or non-transparent methods, a visible cash flow system helps you prevent any shortfalls and makes it easier for you to get a complete picture of your current financial standing.
The process of improving your cash flow visibility means creating a system that identifies and tracks inflows and outflows. Digital accounting tools can be a big help as they can centralise and display this information easily. Business owners can also use the information extracted from these tools to position their business towards long-term growth and survival.
4) Build a Cash Buffer
Building a cash buffer is one of the most effective ways for Australian SMEs to protect themselves against financial uncertainty.
Running a business will naturally entail a lot of risks and surprises. From delayed payments to sudden demand drops, there are a multitude of reasons why your cash flow could suddenly take a hit and put your business in a rough spot.
To keep your business afloat during such times, a cash buffer can be a huge help for your business. Having a buffer makes it so that you won’t have to borrow from lenders and rack up a high-interest charge. It also allows you to get your operations back on track with no true disruptions.
With that said, the amount in your cash buffer plays a big role in influencing how safe you truly are amidst economic turmoil. A rule of thumb is to have at least three to six months’ worth of essential operating expenses set aside. This ensures your business can withstand financial disruptions and continue its operations smoothly.
5) Distinguish Personal and Business Finance
Another way to survive the squeeze as a small-time business owner in Australia is by creating a separate bank account for your business if you haven’t done so yet.
Having two separate accounts for your personal and business needs is essential for a few reasons. Firstly, it helps make tracking business transactions much easier. This is not only useful in creating accurate financial reports, but it also makes it easier for you to handle taxation activities when the season rolls over.
Secondly, making this distinction also instills a sense of discipline in you. You won’t be tempted to take money out of your business funds for personal reasons, and vice versa. This separation ensures that you maintain a good quality of life and strong business ethics without either crossing over to your other “life”.
Business bank accounts, which you can compare with Canstar, are also equipped with unique features that make it easier to handle several financial activities. For instance, they can integrate with accounting software, allowing transactions to be automatically recorded and categorised in real time. This eliminates the need for manual data entry.
With accurate, synchronised data derived from these bank accounts, business owners gain clearer insight into cash flow movements. This makes them more likely to prepare accurate financial reports more efficiently.
We hope that we’ve given you enough tips to help you keep your business afloat amidst these trying times. All the best in running your business!
Images supplied by the client.
