Easy cashflow tips

3 Simple Tips to Improve Cashflow

3 tips for improving cashflow

I think I’ve read almost every small business finance book in the Tea Tree Gully library here in Adelaide – some of them twice.

I’ve found 3 great tips that I’ll be incorporating into my business.  They are not only an easy way to help increase cashflow but will also help tweak your mindset if you find your confidence flagging.

This is from Accounting for the Numberphobic by Dawn Fotopulos.

Dawn writes:

“Invoices become a running record of the value the business delivered for every client – a testimony of what’s been accomplished.  Listing the benefits the client received is the key to differentiating your product or service from others.  It will remind the client of what makes the business you manage different and more professional than that of your peers”.

She goes on to write “Invoices help to build the reputation of the business”.

Have you ever considered the effect your invoice has on your client when they receive it? Is it possible they look at your invoice and think “How did he get to that price? What exactly did they do in that 8 hours they have charged me for?”

If you’ve poured your heart and soul into providing a great product or service for a client – don’t risk your invoice getting put on the backburner whilst your client pays everyone else before you.  Remind your client of the value you have provided so that paying you is that much easier and they have a great reason to use your business again in the future.

So these are my 3 tips for improving cashflow & boosting business confidence:

  1. Include a detailed description on your Invoice of the service or product you’ve provided and remind them of the value you’ve added for them. Be confident in your invoicing!
  2. If some of the work was complimentary and isn’t being on-charged to the client – include that on the invoice so the client is aware.
  3. If 2 or 3 people have performed the work for the client – include their names to give more meaning to the work.

I’ll definitely be incorporating this into my own Xero invoicing for Festival Bookkeeping – it will only take an extra 5 minutes.  Such simple concepts and easily implemented. Love it.

 Looking for more small business tips? Here are some others that readers have liked:

 

Happy bookkeeping…

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Tip for Small Business – Better Cashflow # 2

Phone call business

 

 

 

 

You may have read my previous tip on improving cashflow in your small business, found here Better Cashflow # 1. I have another idea you can easily implement in your small business to help boost your bank account and have more money available when you need it.

It revolves around the following fact:

The sooner you contact an overdue customer, the more likely you are to get paid.

So improve your chances of being paid on time by having a collections policy.

A collections policy is basically deciding on the steps you are going to take when a customer hasn’t paid their invoice by the due date and putting those steps in writing.

For example:

  • Invoice 1 week overdue. Send a friendly reminder by email
  • Invoice 2 weeks overdue. Phone the customer. Discuss why overdue.
  • Invoice 3 weeks overdue. Phone the customer. Discuss payment plan if needed.

You can still be flexible and use your judgement on a case by case basis. But overall you will lay down the framework for what action to take and when. You set aside time on a regular basis to sit down and work through outstanding invoices – you make it a priority.

An important part of your collections policy is to keep track of who you have contacted and when. This helps whether you have an in-house bookkeeper, outsource your bookkeeping or whether you are responsible for your own business accounts.

You will find that over time your customers will start to pay you sooner. If they need to decide what invoices get paid this week, you are more likely to be at the top of their list.

You are not being rude by following up outstanding invoices – you are simply a business owner running your business in a professional manner.

You can find more helpful tips on customer invoicing in Keeping on top of customer payments and also 14 Cashflow Tips for Small Business

Have you run a report lately to see how much your customers owe you and how overdue those invoices are? How much more cash would be in your bank account helping to cover your own expenses if those customer had paid on time?

 

Tip for Small Business – Better Cashflow # 1

Accountant

Do you put money aside regularly to help cover your tax obligations?

Businesses in Australia that are registered for GST are required to regularly submit Business Activity Statements. This could be monthly, quarterly or annually. (If you are paying a contract bookkeeper to do this, they must be a registered BAS Agent).

If having to come up with money to cover your ATO obligations is causing you stress why don’t you review amounts owing more regularly and put them aside into another account? This idea works equally well for larger businesses or sole-traders and freelancers.

Steps:

  1. GST – generate GST report for the past month. Subtract GST paid amount from GST collected amount. This is what you owe the ATO.
  2. PAYG withholding – generate payroll reports for the previous month to find out how much you withheld from employee pays.
  3. PAYG instalments & fringe benefits tax – check previous BAS to see what instalment amounts are going to be due with your next BAS.
  4. Transfer the total amount from steps 1-3 into another bank account.
  5. Repeat on a regular basis eg monthly.

Not only do you have the money sitting there available to pay your BAS liability when it falls due, but you can also pay your other expenses with confidence knowing that your tax obligations are taken care of. So easier business decisions, less stress and improved cashflow overall.

I have other ways to improve cashflow that you can implement into your small business and will post these soon. In the meantime, you could check out my post from a couple of years ago 14 Cashflow Tips for Small Business  and also Have you heard about cashflow forecasting?

Do you put aside money regularly to meet your tax obligations?

Have you heard about cashflow forecasting?

Have you comColourful building block graphe across the term cashflow forecasting whilst skimming through business material? Maybe you have heard about it and thought to yourself that it’s pretty important but I don’t have time to look into it now?

Typically, a cashflow forecast shows your bank balance at the beginning of the period, the money you expect to come in, the money you expect to go out and then your final bank balance at the end of the period.

It gives you a chance to see periods in the year ahead where cash may be tight and periods where you may have extra cash on hand. Instead of flying by the seat of your pants, you can make more informed decisions about when to make your more expensive purchases or when you may need to look for additional finance.

For example – maybe you have kept an eye on your Profit & Loss Statement and your business is making a profit, however you don’t seem to have much cash on hand to pay your bills. You may have been spending money on capital items, have had to pay GST owed to the ATO or have large amounts of outstanding customer invoices – these transactions aren’t reported on your Profit & Loss Statement and are easily overlooked when trying to figure out where your money is going!

Reckon and MYOB both have cashflow forecasting tools. Otherwise a spreadsheet will also do the job. If you have been in business for a while you can use figures from the previous year and build on those.

If you would like to read more cashflow tips, click on the link to my previous article 14 Cashflow tips for small business.

Do you use some form of cashflow forecasting in your business – maybe the MYOB or Reckon tools? What do you think of them – I’d love to hear your thoughts.

14 Cashflow Tips for Small Business

Coins bills

SUPPLIER MANAGEMENT
1.    Credit terms
Pay suppliers on time (not early or late) and ask for credit terms once you are up and running – essentially giving your business an interest free loan.

2.    Review suppliers regularly
Check to see if you are getting the best deal and ask for discounts for early payment or bulk orders.

3.    Late payments
If you need to pay late, communicate with the supplier early and set up an agreed payment plan. Get the plan in writing.

CUSTOMER MANAGEMENT
4.    Payment terms
Make payment terms clear to new customers before you process their order – and put this in writing.

5.    Invoice design
Include all your banking details on your invoices and ensure payment terms are clear.

6.    Credit checks
Do a credit check on all new customers.

7.    Deposits and progressive payments
For larger jobs ask for deposits upfront and progressive payments at various stages of the job to keep cash coming in and reduce the risk of not getting paid for work performed.

8.    Non-paying customers
Offer a payment plan to clear the debt – some cash coming in is better than not being paid at all.
9.    Invoice early
Send the invoice as soon as the job is done.

10.    Ageing debtor reports
Review your ageing debtor report to identify slow paying customers and to identify potential problems before they get out of hand.

11.    Friendly reminders
Phone or email early if payment terms have been exceeded. If they are late payers with all their suppliers, it shouldn’t be long before they decide it is easier to pay you first.

INVENTORY MANAGEMENT
12.    Profit margin
Identify which items make you the most profit and focus your time and money on those products.

13.    Stock turnaround
List all slow moving and obsolete stock and work out a plan to move this stock as quickly as possible. Use this cash to buy stock that sells faster.

CASHFLOW FORECASTING

14.    Find a simple cashflow forecast template and use it.  It will help to identify times where more money is leaving the business than is coming in.