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Three practical tips for managing your business cash flow

Project Alfred
August 2, 2021

Whether your business is well-established or in start-up mode, 2020 was a wake-up call for many about how vulnerable they are to changes in their cash flow.  We’ve put together these back-to-basics practical tips for managing your business cash flow to help prevent cash flow problems.

Tip 1: Split your accounts

Splitting your bank accounts is the easiest way to get on top of your business cash flow (If you need a refresher on what cash flow is, and how it differs from a budget, head here). For most businesses, an income account, a future liabilities account and a regular expenses account is all you need to manage your cash flow: at any point in time, you can see what your business’ incomings and outgoings are. 

Your income account is exactly what it sounds like: this is where any money coming into your business goes. Your regular expenses account is where you’ll put money aside for paying invoices, bills, wages and other incidental expenses. Your future liabilities account is where you’ll allocate money to pay your tax and GST, PAYG and superannuation.

Tip 2: Delegate, delegate, delegate

As SOON as cash lands in your income account – seriously, do this every week – delegate it out to make sure your expenses and liabilities are always covered. This where cash flow forecasting comes into play – it’s an extension of having a business budget. 

When you make a sale or receive payment for a service, transfer the proportion that you need to cover your tax on your revenue, as well as GST, to your future liabilities account. The amount of tax each business/industry pays is very different, so the aim is to work out a tax estimate and thus know what percentage to transfer to your future liabilities account from each payment you receive.  

Good to know: If your business charges GST, whenever you receive payments you could transfer the GST component to your future liabilities account. However, because businesses pay GST on their expenses, it often isn’t necessary to put aside the full 10% of your revenue into your future liabilities account. The key here is to ensure you’re completely covered: don’t rely on a refund of GST on your expenses. Some businesses will have a clearer idea than others of how their GST on revenue and GST on expenses will net out at the end of the year. Putting aside the full GST component of your revenue is the most conservative approach, but we can help you figure out what’s best for your situation.

A couple pays for their meal by credit card after dining at their local cafe.
For many businesses, but particularly for a small business, cash flow interruptions for even a short period of time when business is slow can put them at serious financial risk of cash flow problems.

Similarly, each time you pay wages, transfer the PAYG and superannuation component to your future liabilities account. When the time comes to pay these liabilities, your account should balance (accountants call this netting out if you want to get technical), as you’ve put aside the exact amount that you owe. In theory, you’re left with no liability.  

Depending on your industry, you’ll have a different mix of expenses, but regardless of payment terms, every week you should be delegating money from your income account to your regular expenses account to pay quarterly bills or invoices as they land in your inbox. 

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Tip 3: Keep It Simple Spreadsheets

No denying it, we love our tech (one of our favourite things about Xero is how well connected it is to other apps), but when a business needs to get on top of its cash flow, we aim to keep it simple. This is one scenario where a spreadsheet (whether it be Excel or Google Sheets) is still relevant and recommended.

When helping clients get on top of their cash flow, we set up a smart business cash flow spreadsheet that models projected cash flow, and customise it to include business-specific features. We make sure that these cash flow models are simple set-ups that can be managed on an on-going basis by clients, because while we’re always happy to provide ongoing support, we think it’s really important that every business understands their cash flow. Frankly, managing business cash flow is make or break, no matter your size. 

For most businesses, we like to set up a cloud based spreadsheet model: you get all the benefits of being on the cloud, but it is extremely simple to use, no matter your tech skills.

A spreadsheet used by Project Alfred to help manage cashflow.
At Project Alfred we typically use a cloud based spreadsheet model, helping you get all the benefits of the cloud, while also being easy to use.

Ready to press ‘Go’ on your cash flow?   

Every business needs cash to survive (and thrive). Whether your business is in a slump, or you simply need more cash in order to grow, our experienced business advisers can work with you to introduce simple but effective systems that will improve the visibility of your incomings and outgoings, and improve your business’ cash flow situation. 

Book a free discovery call with our expert team to find out more.

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