
2 minute read
Tips for managing cash flow
Don’t get caught short: practical tips to manage cash in uncertain times
NOT HAVING ENOUGH CASH IN THE BANK, OR SEEING YOUR CASH BALANCE DECLINE OVER TIME, IS ONE OF THE MORE STRESSFUL THINGS THAT A BUSINESS OWNER CAN GO THROUGH.
Unfortunately, this is a reality for many business owners at the moment. According to a recent survey conducted by Xero, 9 out of 10 small businesses struggle with negative cash flow at least once a year, and 1 in 5 are plagued for 6 months with expenses greater than revenue.
Furthermore, the survey found that 92 per cent of small businesses experienced at least 1 month of negative cash flow in 2021, and for 20 per cent, it lasted more than 6 months. The average small business went through 4.2 months of negative cash flow in 2021.
While sectors of the hire and rental industry have experienced strong demand over recent years from growth in the construction industry, there are some predictions indicating this demand may slow with rising interest rates in the economy. Managing a finite supply of cashflow whilst also experiencing inflationary cost pressures on wages, fuel and other inputs will present challenges to a greater number of businesses.
What is causing business owners to be caught short? There are many reasons this occurs. • It could be that you or your industry is being disrupted by competitors. • It could be as a result of taking on too much debt. • Inflation may have reduced demand for your products or services, or it may be causing your costs to increase. • It could be an inventory management issue. • It could be a result of issues with collecting your debtors. • Maybe it’s a pricing issue? • Are you withdrawing too much from the business to spend on personal items? • It could be due to a sustained period of growth or scaling the business back up after years of lockdowns. Growth and scaling up requires an investment in equipment and time which impacts your cashflow.
It is very easy for business owners to throw their hands in the air when considering all of these reasons. It’s often deemed too complex, or the future is too uncertain to do much about it. This results in many business owners taking the ‘let’s see how this plays out approach’ and reacting when issues arise. But from experience, there is a better way.
So, what can be done about it? This article outlines some practical tips for you to avoid ‘getting caught short’.
Start with what you know and what you can control
As a starting point you need to understand your fixed costs. What are they? Are they going to change at all in the coming year? Has anything changed from last year?
You may have been advised by some of your suppliers that costs are increasing. You know that interest rates are on the way up. You can see if your debtor days are growing or if your competitors’ prices have changed. You know when your Business