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Cash flow is one of the most important components of success for a SME business. Without cash, profits are meaningless. Organisations that don’t implement good cash management may not be able to make the investments needed to compete, or they may have to pay more to borrow money to operate.

Most business owners don’t really have a handle on their cash flow because they are too busy running their business. Inadequate cash flow management is causing more business failures today than ever before.

Cash flow is basically the movement of cash in and out of the business. You should be tracking this either weekly, monthly or quarterly. Positive cash flow occurs when the cash channelling into your business from sales is more than the amount of the cash leaving your businesses through expenses. On the other hand, negative cash flow occurs when your outflow of cash is greater than your inflow of cash. This generally brings concern for a business, but there are steps you can take to remedy the situation and generate more cash while maintaining expenses. You should review operating costs such as electricity, phone and internet frequently ensure you are getting the best deal.

You should have a clear debt collection process because late payments can put a significant strain on your cash flow. You could put your clients on direct debit with pre-authorisation checks so that the banks can draw against their accounts at scheduled intervals. You could also try offering discounts to clients if they pay invoices quickly.

As a small business owner, you might have areas that you are not so strong in. Perhaps you are great at sales but struggle with accounting, tax and bookkeeping. Hiring a professional or consultant who’s an expert in the areas that you need support with makes business sense. At the same time, you won’t have to pay a full-time additional salary ongoing. The consultant can work ‘in’ your business and you can focus ‘on’ your business.

Moving to a cloud accounting solution is a must because you can access your financials at anywhere and anytime. This means you can stay on top of your bookkeeping from overseas, home or on the road. Cloud accounting solution has made it easy for you to log in and add expense as you generate them, track overdue payments or review your profit and loss statement. You can securely share your financial information with your consultant, so they always have a live and up to date data to provide you with any advice as needed.

Most small business owners see growth as the solution to a cash flow issue. They often achieve their goal of growing the business only to find they have increased their cash flow issues in the process. Plan for growth and the related cash expenses in advance, so they don’t come as a surprise.

Cash flow shortages are often hard to predict, largely if they’re caused by a large unpredicted expense or unexpectedly slow payment from a major client. You should always have a plan in place to access additional capital if you need it.

One way to keep the situation under control is by tracking your cash flow results every week, month or quarterly to determine if your management is generating the type of cash flow your business needs. This also helps you get better at creating cash flow projections you can rely on as you make business decisions about expanding your business and taking care of your existing invoices.

Should you require any assistance regarding your accounting and bookkeeping, please do not hesitate to contact Pitt Martin Accountants & Tax Advisers on 02 9221 3345 or connect@pittmartin.com.au