With unpredictability a hallmark of the ‘new normal’ for small business, managing cash flow effectively is more critical than it’s ever been. Snap lockdowns, ever-changing restrictions and changes in buyer behaviour are some of the aspects disrupting established business models and strategic plans.
Pre-COVID, more than half of small businesses that became insolvent nominated inadequate cash flow as the primary cause of their business’s failure, according to data from the Australian Securities and Investments Commission (ASIC). In today’s uncertain business environment, businesses large and small are looking to better understand their cash flow and manage it tightly to ensure they have a buffer to see them through 2021 and beyond.
1. Get to know your cash flow
How well do you really understand your business’s cash flow? Even if you’ve never had problems meeting your financial commitments, a disciplined approach to financial planning has never been more important.
Audit your cash inflow and outflows – what are your primary sources of cash, and what are your most significant expenses? Sales are the main driver of revenue for most businesses, but you might also receive government funding or regular income from investments. Your list of business expenses is likely to be long – analyse these outflows to understand your fixed and variable costs.
Working to a detailed forecast, financial plan and budget, and regularly reviewing and updating these important documents is a business imperative in uncertain times. Staying on top of your financials will allow you to identify any potential cash flow problems and take action before they occur.
2. Reduce your costs
A thorough cash flow analysis will allow you to pinpoint areas where you can reduce your costs. Are there recurring or one-off expenses on your list that you could delay, or forego altogether? What about non-essential spending on nice-to-have items that don’t directly contribute to your bottom line?
You could also look at some of your ongoing business-critical expenses to ensure you’re getting the best deal. Comparison websites like Canstar and iSelect make it simple to check that you’re receiving the best rates for business loans and services like gas, electricity, phone and internet.
3. Tighten up inventory management
Taking a more strategic approach to inventory management will allow you to avoid the costs associated with poor stock management. Monitoring inventory levels and regular stock takes should become part of your business-as-usual processes, so you always have an accurate view of how much of your cash is tied up in the product that you’re holding.
If you’ve always bought in bulk, consider making smaller, more regular purchases to reduce your up-front outlay and storage costs. If sales have declined due to COVID-19, keep a close eye on your stock levels to ensure products don’t become obsolete and unsellable.
Square Point of Sale lets you track your inventory in real time, giving you an accurate view of stock on hand 24/7. You can manage unlimited items and product categories, view stock levels across your store(s), and even set up email notifications to alert you when stock levels of a particular SKU are running low. You can also learn more about Square for Retail, our retail specific POS, if you’re intersted in more specialised inventory management features.
4. Make it easy for customers to pay you
Providing customers with a variety of payment options is a no-brainer if you’re looking to get paid faster. Square’s software and hardware solutions allow you to accept chip, PIN and contactless payments in person, and our digital invoices and virtual terminal make it simple to process customer payments online or over the phone.
With Square, your customers’ payment information is protected by PCI DSS compliant data security, whether they pay by card, Apple Pay, Google Pay or gift card. There are no long-term contracts and no hidden fees – just a low, flat fee on each transaction.
5. Improve your invoicing approach
Unless you’re on top of invoicing, you’re at risk of slow payers making a significant dent in your cash reserves.
Square Invoices makes invoicing easy, with the ability to send custom invoices straight from your POS, laptop or mobile device to your customers’ inboxes. Customers can pay in one click online, in person or using their phone, and you can save cards on file to support auto-billing. Square Invoices lets you track payments in real time, send automated reminders and access detailed reporting on late payers.
6. Consider a funding solution for cash-flow emergencies
A financing solution is one of the fastest ways to access cash if you find yourself facing cash flow problems. There’s a myriad of funding options available to small businesses – each with its own advantages and disadvantages. With some finance facilities, you’ll only pay interest on the amount of money that you use; though many lenders charge setup or ongoing fees regardless.
Even if you don’t plan to use a financing solution, it may be worth speaking with your accountant about the best option for your business. Working together, you can create an actionable plan to access extra funding quickly if you do need it.
Even the most profitable businesses can be undone by poor cash flow. Make it priority to get on top of your cash flow in 2021 – and have a clear plan of action in place if it becomes an issue. In today’s uncertain times, taking a strategic approach to your cash flow is one of the most high-impact things you can do to ensure that your business is financially viable into the future.