“Never take your eyes off the cash flow because it’s the lifeblood of business.” (Richard Branson)

What is the “cash” problem?

I often meet successful business owners who are stressed about their cash position and are unsure what to do about it.

Some of the common questions that they ask themselves are:

  • How am I going to pay staff their salary this month? How about my salary?
  • How do I make sure that I always have cash to pay suppliers?
  • How do other businesses grow in tough times?
  • Do other business jumps on every opportunity?
  • Am I the only one who struggles with these questions?

Let me start with the last question first and say that most business owners grapple with these issues at some stage in their business life. The post below should go a long way to help you answer some of your question related to cash flow.

What is cash flow?

Cash flow is the money that flows in and out of your business. Incoming cash flow can stem from customers or clients who buy your products or services. It may also consist of financial contributions from investors, interest on savings or investments and more.

Outgoing cash flow is money going out of your business and includes items such as rent, loan repayments, stock purchases, taxes, salaries and all other business expenses.

It may sound cliché but the phrase ‘cash flow is king’ cannot be understated. Insufficient cash flow is one of the biggest causes of business failure in Australia, as business owners simply run out of money and are unable to pay for the stock, staff salaries, rent or other expenses, which are vital to the operation of the business. A business can only be successful if the cash it generates exceeds the cash it consumes.

Achieving and maintaining a positive cash flow position is the optimal situation to be in, as it helps a business run smoothly and gives it the financial ability to make new investments (e.g. hire new staff, expand locations) and further grow the business.

An essential step in working towards a positive cash flow position is to review your cash flow situation, find any hidden cash and then finally, put certain steps in place to work towards achieving and maintaining that positive cash flow position.

Step 1: Review your cash flow situation

It’s important to take an objective look at your current cash flow position. Here is a short three-step process to help you acquire an overview of where your business currently is at with its cash:

  • Start by establishing how much cash you have on hand – this includes cash in the business bank account, loans that you have received and financial contributions from investors.
  • Determine your anticipated cash inflow on a monthly basis. This includes projected sales, returns from investments and any other incoming cash.
  • Establish your monthly expenses as thoroughly as possible. Whilst it’s not possible to include unexpected costs, you can include regular items such as rent, stock, loan repayments, insurance, marketing, website hosting, travel, utilities, salaries, telephone and more.

It’s vital, to be honest, and objective in this process so that you can see when outgoing cash flow may exceed incoming cash flow and this will help you to plan on how to manage this accordingly. It also enables you to evaluate whether cost reduction is necessary, especially if you find your business is in a predominantly negative cash flow position.

Step 2: Find hidden cash

If your cash flow isn’t as healthy as you’d like, it’s time to find cash that may be hiding in your business. Quite frequently, cash gets “lost” in the midst of the daily operations of the business, so it’s worth taking the time to look at the following areas closely to see if you can uncover some extra cash.

Supplier terms

Having payment terms with your suppliers is effectively an interest-free loan. Ideally, you receive the stock but make the payment at a later date, which means you can sell the stock before you have to pay for it. Try to negotiate for better supplier terms to help your cash flow. This can include longer payment terms, early payment discounts and better pricing or bulk discounts.


Take a look at your stock and see what you’re holding and how long you’ve had it for. Selling any excess or aged stock will generate additional cash for your business and reduce any associated costs with holding stock. You can also sell on consignment or create a “just in time” inventory approach, whereby the stock is delivered just when you need it, saving on inventory storage costs.

Customer payments

Most times you can find some hidden cash within your accounts receivable, which can be freed up by creating processes that minimise the risk of customers paying late. This includes shortening customer terms, asking for deposits, offering discounts for early payment, automating the collections process and not taking further orders until outstanding invoices are paid.

Marketing strategies

Initiatives that fall under the marketing banner that help you find hidden cash include promoting sale items with the highest profit margins, bundling sales and upselling.

Employee expenses

Employee and payroll costs can be a significant portion of your expenses. There are several ways you can free up some cash including switching to an online payroll system (this eliminates bookkeeping fees or the hours you spend calculating salaries and taxes), outsourcing work to contractors (saving on salary and benefits) and introducing non-payment employee incentives, such as time off.

Once you have reviewed your cash position and uncovered hidden cash, it’s time to take steps towards optimising your cash flow position for the future.

Step Three: Optimising your cash flow

Managing and optimising your cash flow is an ongoing process. It requires initial planning and organisation, regular review and constant understanding of how your business is performing overall.

Many areas of your business impact how much cash you have available. By controlling your expenses and increasing your profits, you can improve your cash flow. Here are some tips to help you start taking the right steps towards a healthier cash flow future:

#1 Align payment terms for payables and receivables

If creditors are demanding payables in 30 days and customers are paying you in 45 days, you’ll run out of money. Follow up on overdue accounts and charge interest on late payments. Structure supplier agreements to include early payment discounts for early payment or bulk discounts.

#2 Plan your cash needs

Create a forecast and regularly update your cash flow needs for the next quarter, year and several years out if possible. This enables you to foresee cash shortages and prepare accordingly.

#3 Determine your biggest expenses

Determine your biggest expenses (e.g. cost of sales and salaries), and look for ways to reduce these costs (without impacting your revenue of course).

#4 Check your occupancy costs

Reduce utilities, phone services and storage to the basics. Consider alternatives like reducing space or letting people work from home.

#5 Ensure tax effectiveness

Find objective advice and work together to ensure you have the right structure in place to minimise tax and optimise after-tax income.

#6 Monitor stock levels

Too much stock ties up cash and increases storage and insurance costs. Good stock control will keep stock at efficient levels.

#7 Review banking products

The right banking products (such as a merchant facility) can help ensure you get your money sooner. Review what is available from your financial bank or institution.

#8 Increase income

Review your pricing, use an advertising campaign or improve your customer service to see if you can increase profits.

#9 Establish systems and policies for managing cash

Establish systems and policies for managing cash on a daily basis, including mail handling, online banking procedures, cheque authorisations, reconciliation schedules, etc.

#10 Improve your financial skills or get expert advice

Improving your management and financial skills can help you improve your cash flow. You can also seek advice from a professional accountant who can assess your individual situation, provide a solution and help you plan accordingly.

Learning how to manage and make the most of your cash flow is imperative to your business success. To find out more about how healthy cash flow can contribute to a healthier business, contact the team at ABJ Business Solutions www.abjsolutions.com.au or email info@abjsolutions.com.au

Richard Branson photo credit: Redux