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How To Improve Cash Flow In Your Business

The lifeline of any business is a healthy cash flow. Too often, even large corporations ‘go under’ when they can’t make payroll, pay vendors, or even the taxes that are due.

Many factors are involved, but keeping on top of cash entering and leaving a business is the most basic yet crucial aspect of cash-flow success, but it’s often overlooked by many small businesses owners.Cash Flow coins

Too many business owners wait until the end of the year to find out if they are making money. Waiting until the end of the year is a guaranteed disaster; problems need to be addressed along the way so that there is no question as to whether the business made money, lost it or broke even.

Positive cash flow (liquidity) is important to maintain your day-to-day operations. Your employees need to be paid, you need to pay yourself, new supplies and equipment needs to be ordered, government want its share, and without liquidity it’s a tough stretch.


Managing Business Cash Flow

Improve your business cash flow with these tips.

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D&B compiled the following checklist for business owners who want to determine if their cash flow cycle is up-to-scratch.

Do you know the difference between profit and cash flow?

D&B said one of the most important things to be aware of is that profit and cash flow are two very different things. A business may be making a profit, without the required cash to pay suppliers, or they may have significant liquidity, without the ability to make much profit.

Profit refers to the money made after all expenses are deducted from revenue while cash flow is the amount of money actually transferred in and out of a business that pays for day-to-day expenses.

How much does your business expect to earn in the future?

While it is crucial to determine the current cash position, D&B said businesses should also make a “cash flow forecast” to determine when the periods of weak and strong cash flow are, and to ascertain periods where outgoings exceed incomings.

What proportion of your earnings is liquid?

Good cash flow means having the sufficient cash reserves to pay suppliers and various other bills, not merely recording sales on the books. D&B advised businesses to determine how much money is tied up in accounts receivable each week or month to work out the remaining cash they can use to pay off expenses.

How much do your outgoings amount to?

Outgoings includes supplier payments, rent, salaries, loan repayments, credit card payments, tax obligations and irregular or seasonal expenses – such as maintenance and stock purchases. D&B said having an intimate knowledge of outgoings  leads to an informed view of cash flow.

Are there any areas of the business not making money?

If there is an area of the business that is not reaping the sales, it is an expense that can disrupt cash flow. D&B advised businesses to look out for warning signs – such as excess inventory of a particular product, products that do not fit into the business ethos or two very similar business functions within the organisation.


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AIMS Accounting Service
22 Swindon Close
Lake Haven NSW 2263
Phone: 02 4392 8720

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