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Even for the most profitable business cash flow is key: these five habits will help you keep on top of your cash so that you can focus on growing your business:

All businesses experience a mismatch between cash needed and cash available at least occasionally!

In order to start the process of changing your habits in this regard, the first challenge is to correct any misconception related to the difference between Profit & Cash:

“Cash Flow is Key even for the most Profitable Businesses”

Even a profitable business can be forced to close its doors if it’s starved of cash:

• Profit is an indicator of the difference between income and expenses
• Cash flow is making sure you have the cash to fund your business operation

The business owners who experience less stress regarding their cash flow are focused on mastering these five habits:

1) Habit #1: Regularly Review Your Well defined Plan

Use a structured and well defined financial plan which you review on a regular basis. It helps you predict any potential cash flow gaps and provides you ample time to rectify the gaps before they cause any severe stress. Your plan should include these key components to make it easier for you to manage:

• all your bank balances (highlight accounts with ATO funds set aside)
• who owes you, how much, when its due and the payment terms
• who you owe money to, when its due, the payment terms the nature of the product or services they provide (how important is this vendor to the smooth operation of your business?)
• any finance repayments

2) Habit #2: Keep Your Inventory Moving

Excessive inventory (slow moving!) results in your valuable cash being tied up and not moving through your business. This slows your wealth generation. Moreover, if you buy products in bulk without turning your stock over frequently you run the risk of stock expiring which you then may have to write off. Increase your stock turns by implementing regular Stock Takes will assist to ensure that your inventory is accurate and stock close to expiring is issued first.

3) Habit #3: Maintain Dynamic Funding Solution

The only constant in a business is change: changes in the local economy, changes within your industry, changes within your business in terms of staff etc. For example, the funding approach that you took while starting-up your business, might not necessarily be effective when you are taking your business to the next level. Regular assessment of your current funding solution against other available products to scrutinize if there are other better options for funds available.

4) Habit #4: Manage your Payment Terms (Debtors versus Creditors)

Ensure your payment terms with your creditors are longer window than the payment terms with your debtors so that generally your debtors pay you before your payment to your creditors are due.

5) Habit #5: Don’t forget the ATO Liabilities

Have a separate bank accounts to set aside the funds due to the ATO for example GST, PAYG & Superannuation. Set asides these funds as soon as the event takes place: for example set aside the GST as soon as your customer pay you.

Understanding the key causes of Cash Flow Gaps will help you keep cash flow steady and ensure financial stability and growth for your business. Focusing on these five habits will help you to manage your cash more effectively.

#Cashflow #CashflowManagement #Entrepeneurship