- Sales are Dropping Below Your Budgets
If you are struggling to find your next sales and have been experiencing several months of low sales, then you may not get the revenue you need to make profit or to merely break even. Having reliable sales projections and a consistent flow of sales is imperative to the growth of any business. Marketing and lead generation must be effective in order to ensure healthy sales and revenue. Lack of sales will inevitably translate to low revenue, low profit and an increase of debts to suppliers, financiers and the tax office.
- Customer Retention is Low
And you are unable to convert prospects. If you are losing more customers than you are
gaining, then it is only a matter of time that you will have very few customers to get your
- Shortage of Cash Flow
Sales may be going up and profit may be up, but the working capital terms are very long or
your business is not good at collecting revenue. The business may be profitable but there is
no cash. There is a big difference between profit and cash. Cash is king.
The ability to generate cash is an important key to business success. Without a strong,
positive cash flow a business will never thrive and grow. While it may be normal for
some businesses to experience fluctuations, it is critical to be able to balance the high and
low cash flow seasons. If cash flow continues to fall, then the business will not survive.
- Overdraft is at its Limit
Your Overdraft is near or at its limit for a significant period of time.
- Bank Contacts You Unexpectedly
Bank requires more information or security to maintain your credit facility or has suggested refinancing.
- Financial Accounts are not Accurate, Timely, Read & Regularly and Understood
World financial mentor Tony Robbins lost $100 million because he took no interest in his financial accounts and allowed his CFO to defraud him. Now he can understand his financial accounts really well!
All business owners need to appreciate that they need to take the time to have in place good administration practices and robust systems to ensure they are getting quality information in a timely and accurate manner.
At the most basic level, business owners should have a clear understanding of their Profit and Loss, Balance Sheet and Cash Flow to avoid financial strife.
- Unable to Convert Accounts Receivable and Inventory to Cash
Check the credit terms you are granting for your Accounts Receivable and check the quality of products being delivered to you. You must be able to convert these promptly to cash as this can also affect your cash flow.
- Difficult Meeting Supplier Terms
Suppliers are threatening COD terms or stop supply, issuing demands or threatening legal action. Balances are increasing while Debtors and Inventory remaining static.
- Unable to Place Stock Orders
Unable to place orders for stock due to cash constraints.
- Unable to Pay Statutory & Other Obligations on Time
Difficulty paying GST, Payroll Tax, Insurances, WorkCover and Superannuation regularly on time.
- Needing to Sell Capital Assets
Required to fund ongoing trading.
- Staff Morale is Down, Above Average Staff Turnover and Other Issues
Morale down due to awareness/ lack of motivation, Perception of cash flow difficulties and Higher than normal turnover.
Most employees can sense that a business is in trouble. It can start with salary delays or cutting off of bonuses and benefits. If employees sense that the culture, environment and atmosphere of the company have become bleak, then this will have a direct impact on their productivity and quality of performance. Without the results you are expecting from your staff, your business will suffer.
- Communication Breakdown between Upper Management & Staff
When there is breakdown or failure in communication, management will not be able to identify conflicts in the everyday operations of the business. When conflicts are not identified, they will not be addressed or solved.
- Delaying Equipment Maintenance & Replacement
Putting off costs of maintenance & replacement could cause a significant interruption to running your business.
- You Dread Going to Work Every Day
Your passion for your business is gone. You are always exhausted but you feel that you can never take a vacation because business functions solely depend on you. If your business depends on you alone, then it will never grow further from that. You must have effective management and best practices in place so that even if you are away, you can be certain that your business is healthy and growing in revenue.
- Regularly Keep Financial Records Up To Date
Financial records are the backbone to the business and it is critical that you keep them up to date and monitor regularly so your business can be the best it can be. You should ensure that all your invoices and payments are entered weekly into your financial system and review your profit and loss statement monthly.
Cash flow forecast will help you monitor the cash position of your business and this should be prepared at least monthly. However, weekly will show you each week what payments need to be made and where the money is coming from.
- Improving Your Cash Flow Management
Before you can prepare your Cash Flow Budget, it is important to first know and have a thorough understanding of your balance sheet.
Many business owners get over-enthusiastic about selling their products and services and focus only on Profit and Loss instead of looking at the entire financial situation of the business. This can prove fatal to a business as healthy profits can often mask an impending cash flow problem.
Have a properly structured Balance Sheet and make sure you understand all the figures included in it. When you have a comprehensive balance sheet, you can now develop a cash flow budget.
- Shorten Your Credit Terms
While having a cash flow budget is a great help in planning your finances ahead of time, another key to improving cash flow is to get more money into your business.
One way to do this is to shorten your credit terms. Extending credit to customers is a common practice for many businesses but make sure that the credit terms you are giving is not impeding cash flow.
Research on the usual credit terms for your industry and assess how you can shorten this without harming your relationship with clients.
If your usual terms are 60 days and you shorten it to 30 days, some clients may not respond favourably. To encourage these businesses to pay earlier, perhaps you can offer early payment discounts or value added services for early payment.
- Manage Your Debtors
Make sure you inform your customers how much time they have before their accounts become due for payment.
You can send them payment notices or give them a call when payment deadlines draw near. You can also delegate a staff member to be in charge of invoicing, collections and follow-up. This can help speed up your invoicing and collection process.
The delegated staff member can also follow-up with customers whose credit terms have lapsed but still have not settled their payments.
- Prioritise Payments
If your supplier gives you a credit term of 60 days, then use it.
Do not feel rushed to pay it earlier than 60 days. Take advantage of credit terms being extended to you whenever you can.
Prioritise payments according to the severity of consequences if you fail to make payment. Prioritise wages, suppliers and ATO payments.
- Avoid Incurring Penalties and Interests
Make sure to settle your payments on time with creditors as some of them, like the ATO and ASIC, will impose penalties for late payment.
Whenever you can, try to pay your business credit card bill in full in order to avoid interest. Penalties and interests can amount to a considerable amount of money which you could have used to pay other liabilities.
- Top Tips to Help Increase Cash Flow include:
- Prepare weekly cash flow forecasts to understand what has to be paid and when
- Sell old or excess stock
- Have solid procedures in place for collecting outstanding debts from customers – and stick to them!
- Talk to your bank about putting a temporary loan in place, such as an overdraft
- If your profit is reducing then your business could be on a slow downward spiral. You need to monitor profit and identify issues regularly
- Gross and Net margins – Check your stock prices and on costs and review expenses regularly to ensure that you are passing on any increases to your customers if possible
- Have measures in place to retain and attract new customers and are they working?
- Review the productivity of your staff and your rosters. If you have staff that are sitting idle then this will impact profit. Make sure all staff are fully employed during their rosters
- If you don’t have access to finance when you need it, this could be the start of the end. Having a finance facility in place that is available when things get tight is a favourable contingency plan. So you should look at. Obtaining a finance facility when the business is showing good profit and cash flow
- Develop a good relationship with your bank and keep them informed on how the business is going, so that if you need to approach them for finance they will be well informed on your business operations which may assist in obtaining finance
- Have a recruitment plan in place that outlines the attributes that your staff need to meet, such as any qualifications, flexible to working hours, team player etc. and spend extra time at this point to ensure that you employ the right staff
- Be an employer of choice – provide great support and training to your staff and the word will get around. involve staff in managing the business – you will get more commitment when your staff have had a say. ensure that the culture within the business provides the rewards staff are looking for.
SOME FINAL WORDS
Cash is the lifeblood of business and without it your business can fail despite high turnover or profitability. As such, it is crucial to effectively manage your Cash Flow. Having a Cash Flow budget can help you plan your finances to ensure your business can meet day-to-day expenses.
- FREE 30 MINUTE PHONE FINANCIAL BUSINESS CHECK
- FREE Financial Diagnostic Audit Review and Profit Improvement Action Plan (valued at $385)
- FREE CASH FLOW CRUSH REPORT – Would you like to receive 4 super-fast, proven and easy to implement ways to significantly improve Cash Flow in your business. A MUST to secure your business future!