According to Australian Securities Commission*, the number one reason that small businesses fail is due to poor cash flow. And in my experience, very few businesses are proactively monitoring or managing their cash flow.
What exactly is cashflow? It is different to your sales and profit, as it relates to the TIMING of money coming in vs money going out. The reason this is so critical to the success of your business is ensuring that you have enough cash to cover your costs. Even large organisations can fall victim to not monitoring and managing their cash flow, particularly if they don’t have large cash reserves.
How do I track it? A simple excel spreadsheet should be sufficient for most small businesses- you just need to capture your opening cash balance (i.e. bank balance) then the timing that money comes in vs when it goes out. Weekly buckets is fine.
What can I do to improve my cashflow?
There are many options available to improve your cashflow- depending on your situation. But some good ideas:
- Start forecasting your cashflow weekly and have clarity around your position
- Collect your outstanding receivables and change your credit strategy to minimise exposure going forward
- Review and manage all expenditure (and timing)
- Tighten stock management to ensure you are not holding too much inventory
- Improve business income.
Set your business up for success- make cash management a priority!