Cashflow is the lifeblood of your business. If it stops flowing, your business dies. Successful cashflow management means balancing the needs to your investors, customers, staff and suppliers. This article sets out three steps to making your businesses cashflow more secure.

Step 1 – Set up your cashflow map

If you don’t know where you’re going, you’ll get lost – Prepare a cashflow budget

A cashflow budget is your roadmap. It helps you know where you might be going. Do you have one? If not, now is the time to pull one together. Even if its rudimentary. Start with a spreadsheet ? it doesn?t need to be fancy. We have a free sample spreadsheet that you can use or you can build your own.

Start by writing down your cash inflows. How much comes in each month? Not in terms of sales as measured by your accountant, but in terms of cash. If you receive up front deposits, for example, you have the cash. If there is a delay between your sales and the time you receive the cash, ensure that this is considered. For example, if your sale occurs in Month 1 but you don?t get paid for 30 days, ensure that the cash flow is included in Month 2.

Next, what cash outflows do you have? Materials, salary and wages, rent ? these are usually some of the biggest costs. What about other annual lumpy costs such as insurance? Put these in too.

Blog 12

Use your cashflow forecast to map where business is heading

Include all your tax payments, including GST, PAYG, income tax and payroll. These can be large, lumpy and depending on the size of your business, may come around infrequently. Don’t be surprised by a large tax bill.

The different between the cash in and the cash out is your net cashflow. If its negative in any give month, it means you have more cash out than in.

Step 2 – What cashflow resources do you have?

Every heard the expression “Asset rich / Cash poor”? You can’t (normally) use assets to pay for things. For that you need cash. The next step is to determine what assets you have to pay your bills. These are called your “liquid assets”. Things that are cash or nearly cash.

Write down the all liquid assets you have. This includes cash in the bank, borrowings available (including credit cards), other assets that could be quickly turned to cash. 100 shares of BHP can usually be sold and turned into cash pretty quickly. Include these. A piece of plant or equipment can’t be, so exclude these.

What other assets are there available outside the business that could be drawn on if needed? For a private business, include these as well. In times of strife, you could always lend the business money to help it through.

These are the financial resources you have to manage your cashflow, also known as your working capital. Its the amount of lifeblood you have in your business.

Step 3 – Bring it together

Take a look at the bottom line of your cashflow forecast. If every month is showing more cash in than cash out, that?s fantastic. Question is what to do with the surplus? Do you reinvest it back in the business to grow more? Pay a dividend or increase the owners salary? Nice problem to have!

If cashflow is sometimes positive, sometimes negative, then we need to look at ways of improving your working capital flow. Look at the month with the biggest negative balance. Add a buffer of 30% and this will be how much working capital your business needs. For example, if the biggest negative month is negative $10,000 cashflow flow, then you need to hold at least $13,000 in working capital.

Have a look at the financial resources you wrote down above. Do you have enough to cover that amount? If not, let’s Rev up your working capital for ways to improve it.

Rev up your working capital

Your working capital is the lifeblood of your business. It’s the cash you receive from customers and clients and is what you use to pay bills, suppliers and staff. How do you improve your working capital? You make sure the cash flows into your business but does not flow out too fast.

Chase your debtors

The first step is to ensure you turn your sales into cash as quickly as possible. If your business doesn’t collect cash upfront (such as a retailer) then you will usually get paid once the job is complete. This means you spend cash prior to collecting it.

  • Make sure you are billing and collecting your debtors promptly and on time. If a job is complete, get the invoice out the door. The longer you leave the billing, the more it costs your business.
  • Shorten your credit terms. If you give customers 14 days to pay, have a think about shortening that to 7 days. Perhaps offer a discount for early payment.
  • Ask for an upfront deposit or partial payment. For longer term projects, put in place progress billing or milestones and make sure you bill at the relevant time.

All these steps will help the cash inflow into your business.

Stretch your creditors

Your suppliers and staff are some of your most important stakeholders. They make the magic that is your business happen. But they also expect to be paid. How do you balance between their need to be paid and your need to retain cash in the business?

  • Make sure you pay on time, but not early. No one likes getting paid late ? why upset your suppliers
  • Spread out lumpy, annual cashflows. Some expenses, such as insurance or software subscriptions, usually occur once a year. Some companies offer the ability to pay quarterly or monthly. If you receive regular cash inflows, it might make more sense to spread your cash outflows as well.
  • Use supplier discounts. Sometimes supplies offer discounts for paying on time. If cashflow is ok, then take the discount and save cash. If cashflow is tight, perhaps wait.
  •  Taxation ? the biggest blackhole most businesses fall into is not paying their GST, PAYG and income tax on time. Make sure you set aside enough not to get caught short.

Want an easy tip on paying making your tax payments easier? Try our two bucket strategy.

Review your costs

Cutting costs is both a way to save money, but it can also inhibit business growth. Remember the old adage, you’ve got to spend money to make money? Its true mostly. But not all costs are the same. Here are a few quick things to check.

Automatic charges

Have a quick look at all the automatic charges going against your credit card. Do you use all the services to their full extent? Is there a free option? I was using Salesforce to drive my business, but found that HubSpot has a very similar product, with a few less features, for free. It more than suited my business needs, saving me $60 per month.


Google and Facebook Ads is another area where spending can easily get out of control. If its not part of a properly coordinated campaign, you might be wasting your money.