If your money is tied up and you’re not too sure which path to take next, put a hold on everything until you’ve read this. As a small business owner, it's essential that you understand how your cash flow can greatly affect how you do business. According to the Huffington Post
, about 60% of small businesses fail within the first year – and in Australia, small businesses account for 97% of ALL businesses. This is largely attributed to poor strategic management and issues with cash flow, namely high cash use. Most of the owners of the business don’t conduct a lot of research, nor do they seek to create a long term solution, hence the failure. That’s why it’s super important to understand why these five tips will help you achieve success. But really, it’s all down to you. Your ingoings should be balanced with your outgoings, and of course, with a nice slice of profit.
So, where are you going wrong?
If you’ve been struggling with your money management as of late (or as of the beginning), these five expert techniques can help you get on track.
1. Request A More Suitable Payment Method From Lenders
Business finance can help you get your great idea off the ground, and it can help you grow when you’re ready to start expanding. While some businesses opt for investor contributions, not all business owners want to share their business equity. Further, many banks offer competitive low-interest loans to small businesses to acquire more business themselves. That being said, loans are a big commitment, and for first business owners, they may find themselves biting more off than they can chew.
If you’re finding loan repayments are the cause of your unravelling then it might be time to renegotiate your finance. That, or look to switch providers – either way, arrange a meeting with your business broker to discuss plans. Struggling to make these payments can be stressful, especially if this is your first business start-up. When meeting with your broker, suggest a better payment plan suitable to your needs and don’t be afraid to ask for an extension. This could either make or break your business!
Best Practice for Managing Business Loans
- Pay more when you make more – For many businesses, cash flow is seasonal. When things are looking up it’s the best time to smash out repayments. Pay more than your minimum requirement to get ahead, or alternatively, place this money in an emergency fund for when times are tough.
- Get Government assistance – The Australian government supports small businesses with a number of grants and resources to help with money management. For those struggling with debt, it’s always a good idea to get into contact with local advisory bodies and support groups to ask for advice.
- Check-in on your credit score – The better your credit score, the better standing you have when negotiating with banks. A higher score might mean reduced minimum payments or a shorter loan. To maintain a high credit score, ensure you’re making repayments on time and avoid taking out too many loans at once.
2. Stick-ability: Your Budget
One of the first things you learn in business is undoubtedly budgeting. Developing a manageable budget is fundamental to business success; however, creating a budget is one thing, and sticking with it is another. When running a business, you need to bear in mind all the costs involved. While there are the obvious expenses of rent, electricity, internet, product, labour, subscriptions, insurance, and marketing, there may be some costs that creep up on you or that might be unexpected. It’s always a good idea to keep an emergency fund for this reason.
If you know something is amiss, chase it up immediately. We know – this might be the last thing you want to do or even have time to do, but budgets are THAT important. If you’re already juggling too many balls, consider hiring a bookkeeper
to help you maintain all of your financial records. With a qualified professional keeping tab on your incomings and outgoings, you can focus on solely running your business.
Tip for Staying on Track
- Keep track of all expenses – be critical and avoid veering off the plan. For when you have no choice, set precautions for the next time the event may occur. For example, if you’ve had to dig into the register to pay for supplies, maybe you should keep an inventory of supplies you regularly use to create a system for replenishing them that’s cost-friendly.
- Pay bills on time – much like your business loan repayments, you should be paying your bills on time to avoid unnecessary late fees or any unbudgeted costs. To keep track of due dates, mark key dates in your calendar (you can do this digitally so that you can check it any time).
- Cut back on perks – of course, it’s nice to reward great work from your employees and give them an incentive, but avoid being overly generous, especially when you’re trying to make ends meet. After all, you are paying your employees for their time. Then there’s the tech. How many devices do you really need? Save costs by only buying the necessary tech.
3. Invest In Your People
On the other hand, lackluster equipment and staff fatigue might just be the thing that’s holding you back. You’d be surprised how much of an influence office space and equipment have on employee productivity – sometimes it’s the difference between someone taking a job or not! According to one study, 46% of professionals
said that good office design impacted their decision to accept a job offer, and 75% of professions indicated that good office space makes them feel valued as employees. Instead of cutting expenses, you might be required to reinvest into new staff and more or better equipment which could eventually lead to a greater profit margin. Some may call this a gamble but if you plan meticulously and consider the risks, you will be able to evaluate whether this course of action is feasible for your business.
4. Creative Incentives for Your Customers
Always think outside the box
when it comes to drawing in new customers. From social media giveaways to limited-time-only sales on products, there are many ways to draw in customers. The more of an audience you can reach, the better. The more new customers you can appeal to, the more that will discover your brand and possibly become loyal to your brand. For existing customers, you are also rewarding them for their business. Whatever it is your selling or providing to the public, an incentive goes a long way. Incentives can also boost sales, increasing your profit margins and rate of growth. There are many resources available on the internet to help you plan. Do your research to find possible incentives to provide customers
5. Learn the Important Lessons
Considering the amount of money and time you’ve spent investing in your business, taking a little more (from each category) to learn the basics of accounting really pays off. Finance is one of the biggest components of business; you cannot run a business without consideration for the financial side. So, why not take charge of your business’ financial situation by learning the basics of business accounting. With more knowledge of accounting processes and procedures, you can feel more confident managing your cash flow.
We get it – this isn't a possibility with everyone. That’s where bookkeeper and accountants step it. Hiring a bookkeeper or accountant to help with your business can put your mind at ease when there’s already too much on your plate. Still, tossing up whether to hire a professional bookkeeper or DIY? Read our informative guide
to help you decide.
Bonus Tip: Don’t Take it Personal
Just because we’re feeling generous, here’s an extra tip – and this one’s a biggie. Never mix your personal and business expenses. In Australia, if you’re a company, partnership, or trust, you must have a separate bank account, for tax purposes. When you set up your separated accounts, make sure to keep your personal and business finances separated also. By all means, avoid personal expenses accumulating on your business account otherwise you leave a bigger mess to balance out in the books and during tax time. Also, avoid using personal funds to cover business expenses when things are getting tight – again, it’s a quick fix for now but causes more trouble down the track.
The Bottom Line…
Understanding how to steady your cash flow is easier said than done. Running a small business isn’t for everyone. If you feel overwhelmed about running your business, ShoeBox’s affordable packages
will help you regain your sanity. Not everyone is good at number crunching, so if all this cash flow jargon is just about enough to make your head explode, contact
ShoeBox Bookkeepers for a consultation and advice on how to get your business running smoothly again.