Are you ignoring one of the most important factors in business success?
Do you know the number one reason for business failure in Australia?
Inadequate cash flow or high cash use is responsible for almost half of all businesses closures. During the day to day running of your business it can be hard to remember when payments are due or keep track of expenditure when outgoing payments direct debit themselves. Don't be your own worst enemy! Learn about the good habits you can adopt to implement cash flow processes, keeping your business ahead of the game and out of the deep end when it comes to surprise expenses.
Surprise! It's payment time
Tax and compliance payments don't have to be the enemy! Combat the stress of forgotten expenses by setting aside a percentage of your sales into a separate bank account for compliance payments of GST, PAYG withholding and superannuation on an ongoing basis. Don't wait until your payments are due, sending yourself grasping for available finances, be prepared by opening a designated account and set money aside there, you'll thank yourself in the long run.
The reason behind opening a new account for these payments is so that you don't log into your business account and see a big number. This can trick you into thinking you have more available funds than you actually do, leading to spending decisions that will only push you back.
What are you really spending money on?
Review all of your outgoing expenses, you might be paying for services or subscriptions you don't even need and no longer use! Keep on top of where your money is going so you can predetermine how much you'll have when payments are due and direct debit themselves. It also doesn't hurt to keep up to date with the newest online services on offer. Maybe a newer rival of the resources you're using has emerged onto the market at a cheaper price? All of these costs can add up so it pays to review where your money is going and determine if the expense is essential to your business.
Stay on top of stock
Monitor stock levels and practice good stock control by modifying the quantity and timing of your stock purchases to coincide with higher cash flow periods. Take inventory regularly and only keep the amount of stock on hold that is required to keep your business running efficiently. When cash flow is up, don't go crazy and buy a ridiculous amount of stock just because you can! Excess stock takes up essential storage space, you could end up paying for more space than you actually need.
A coaches approach
Sarah recommends the Stuart Bell approach which involves adopting the mindset of sales ;profit = expenses, rather than sales ;expenses = profit. This ethos involves viewing expenses as a percentage of your revenue rather than allowing them to dictate your revenue goals.
Bell applies this tactic by splitting his businesses revenue into four accounts:
- 40% into an operating expenses account.
- 15% in a separate tax account.
- 20% to pay yourself.
- The rest is stored as profit.
Keep in mind that this exact process may not work for some businesses. It is important to communicate these actions with your financial adviser and listen to their advice. They can work with you to make a plan that best suits your business situation.
Don't be afraid to ask for help!
Running a business is hard but you're not alone! A business advisor can sit down with you to discuss the best options and work with you to create a cash flow plan for the future. If you're after some guidance when it comes to your business plan and cash flow practises contact Helix Planning to speak to a business advisor that gets it!