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5 ways to improve your cash flow

5 ways to improve your cash flow

5 Ways to Improve your Cash Flow

In our last blog, we discussed ways of managing your cash flow. We know that cash is the lifeblood of any business, so here are 5 more tips to help you improve your cash flow.

 If the cash dries up, problems quickly begin to multiply. By keeping the cash running freely and you can continue to grow your business.

Here are five tips for improving your cash flow:

1. Have a system to manage your debtors. 

Come up with a clear, step-by-step way to handle outstanding accounts. This might include:

  • automated reminders on unpaid emails
  • a phone call or email when the amount has been outstanding for a certain period of time
  • a stop credit on the client when they exceed an acceptable payment time.
2. Be prepared for tax time 

One of the fastest ways to run out of cash is to find yourself short at tax time. Talk to your accountant about tax planning measures you can implement to ensure you can make your compliance and tax obligations. 

3. Try not to dip into business funds for personal spending

It’s always tempting to tap your business account for personal spending. Instead, try to keep them separate. If you’ve over-saved at the end of the tax year, you may be able to draw down a nice bonus. That’s much better than being caught short.

4. Sell old stock

Too much stock? Consider old stock, old furniture, machinery or even stationery: they can all be sold to free up space and provide a small cash injection.

5. Forecast your cash flow

Create a cash flow forecast (we can do this with you) and that will help you monitor and measure the flow of cash in and out of the business.

Need help with forecasting or cash flow management? We’re here for you. Feel free to get in touch.

Managing better cash flow

Managing Better Cash flow

We all know that cash flow management is vital for a growing business. But where do you start?

Here are six steps to managing better cash flow.

6 steps to managing better cash flow

1. Invoicing

Invoicing is a good place to start your cash flow management.

In other words, invoice your customers as soon as your product is sold or your service is provided. The quicker you invoice, the quicker you should get paid. Also consider asking for a deposit up front – especially if you’re a service provider or your product has a high-end price.

As we mentioned, invoicing is only the start of your cash flow management. Here are five other steps you can take to improve your cash flow management.

2. Know your numbers

We understand that not everyone is confident with numbers. That doesn’t mean you shouldn’t know your numbers.

Having appropriate accounting software in place, like Xero, will help you always know your cash position. The right software will also help you forecast your cash flow.

Having a good handle on your business numbers will not only help you manage your cash flow, it helps you take advantage of new opportunities.

3. Keep your numbers current

We mentioned having the appropriate accounting software in place. But that software is only as good as the information you provide it. Keep your information up to date so you know the financial state of your business at any time.

If you don’t have the capacity or capability to manage your accounting software, then outsource to a qualified bookkeeper. We will manage your books and provide insights and forecasting so you can better know your numbers and focus on your business.

4. Don’t be a pushover

Make sure your invoices are paid on time and don’t be too lenient with your customers. Keep an eye on your accounts receivable and have an invoicing strategy for any overdue accounts.

You may sometimes need to understand your customers challenges, but that doesn’t mean you should be taken advantage of. Be prepared to act sooner rather than later.

5. Save for a rainy day

Sometimes quick access to cash can make or break your business. Saving for the proverbial rainy day (in other words, building a cash reserve) can provide you with that access if unexpected expenses occur. Or an opportunity arises to invest in your business that’s just too good to pass up.

6. Separate business from pleasure

It’s essential that you keep your business and personal finances separate. Especially if you want to know your business numbers so you can manage and forecast your cash flow effectively.

Cash flow is king

Yes, “cash flow is king” is an expression we hear all the time. And there is a reason for that. Managing your cash flow effectively means that your “cash” serves you and helps you build a successful business.

If you need help managing your cash flow, talk to us.

Creating a watertight accounts receivable process

Creating a watertight accounts receivable process

In business, it doesn’t get much more important than making sure your customers pay you.

And accounts receivable is all about getting paid for the work you do – in business.

It’s not exciting, but it’s important.

The accounts receivable process covers every part of your payment lifecycle. From finding customers to communicating expectations to billing correctly to following up on late invoices.

Building an accounts receivable process

So, how do you to build an effective accounts receivable process in your business?

The right customers

First, you need to work with the right customers and clients.

Before taking on customers, make sure you run credit checks. It’s also important to have them sign written terms, including billing timeframes and late payment penalties.

If you are comfortable doing so, you can also ask clients to sign a personal guarantee. This gives you the option of suing for an unpaid debt.

Effective invoicing

It’s vital that you always send invoices straight after the work is completed. This gets the payment ball rolling.

Make it as easy as possible for your customers and clients to pay you. You can do this by offering options like debit, credit or direct debit to.

Dependent on the apps you and your customers use, you may be able to set up to send e-invoices directly to your customer’s accounting or finance software.

Following up

Make sure you keep a close eye on your invoices. Make frequent and regular checks that payment has been made.

Have a process to follow up if an unpaid invoice is past its due date. This can be an automated process using cloud accounting software to send email reminders and statements. If that is unsuccessful included phone calls and consider debt collectors in your process.

Reviewing

For any customers that regularly pay their invoices late, consider changing their terms. Perhaps split your invoices and ask them to pay half upfront. Or suggest another payment method.

If there is not change to their late payments after changing their terms, you might consider letting them go.

Consistency is key

At the end of the day, having a watertight accounts receivable process is all about consistency.

Follow your process every time.

  • Select the right customers
  • Have clear policies and prompt billing
  • Ensure thorough follow-ups and reviews

Automating your process as much as possible ensures consistency. And being consistent in your process reduces the risk of unpaid bills and rogue customers.

If you’re ready to create an effective payment process talk to us about how we can help.

JobMaker scheme – key points

JobMaker Scheme - Key Points

The JobMaker hiring credit scheme is now open for registration.

Here’s a summary of some of the key points around the JobMaker scheme.

If you are considering applying for JobMaker, please take into consideration the administration of JobMaker can be quite complex, so we don't recommend attempting to manage this on your own. Talk to us about how we can assist.

For background, JobMaker was announced by the government in the October 2020 federal budget, and will operate until 6 October 2021.

Key points:

  • Key to the hiring credit scheme is that employers must have added additional employees and also have increased their payroll during the relevant JobMaker period, as compared to a baseline date.
  • The hiring credit is backdated to 7 October 2020 (applying to new employees from that date) and will provide eligible employers with the following payments for up to 12 months for new jobs created from that date.
  • Eligible employees must work an average of at least 20 hours per week over a JobMaker period for the employer to qualify for the payment in respect of that employee. They must have commenced employment between 7 October 2020 and 6 October 2021, were aged between 16 and 35 years at the time they commenced employment, and worked an average of 20 hours a week for each whole week the individual was employed by the qualifying employer during the JobMaker period.
  • The JobMaker payments for up to 12 months for new jobs created are:
    a) $200 a week for hiring a worker aged 16 to 29 on at least 20 hours a week during the JobMaker period and
    b) $100 a week for those aged 30 to 35 on at least 20 hours a week during the JobMaker period.
  • Employer eligibility criteria are broad. Some employers are specifically excluded. These include:
    • employers who are claiming JobKeeper
    • entities in liquidation or who have entered bankruptcy
    • commonwealth, state, and local government agencies (and entities wholly owned by these agencies)
    • employers subject to the major bank levy, and
    • sovereign entities (except those who are resident Australian entities owned by a sovereign entity).
  • Entitlement to a hiring credit payment is assessed in relation to three-month periods known as “JobMaker periods”. These periods are relevant for the purposes of the additionality criteria (refer first point).
  • Claims can only be made during the claim period. No exemptions or extensions are available. There are strict dates by which claims for a period must be reported by. The credit is paid every 3 months in arrears to employers.

As mentioned at the start, this is a summary of some of the key points around JobMaker. There are many other requirements and a thorough understanding of those requirements are needed to ensure your JobMaker administration is correct. 

Talk to us if you need support in applying for or administering JobMaker.

Five benefits of outsourcing your Payroll

Five benefits of outsourcing your payroll

When it comes to running a business, time is an irreplaceable commodity and we are seeing more and more businesses start to outsource specialist or essential services. If you employ people, then payroll is both a specialist and essential service.

Why?

Because outsourcing payroll allows business owners to focus on their strengths and core business, leaving the complexities of systems and compliance to experts.

With the right team behind you, the benefits of outsourcing your payroll can be realised almost immediately.

Here are five benefits of outsourcing your payroll.

1. Save time

By outsourcing your payroll, time spent on compliance, regulations, and training staff on using internal systems is eliminated. Cloud-based payroll services can also eliminate time spent by HR updating entitlements, leave and benefits.

2. Save money

Having fewer full-time employees can cause a ripple effect on cost savings throughout an organisation, from HR and IT through to office space and utilities. Outsourcing to payroll services providers reduces the cost of hiring and retaining specialised staff – two activities that are expensive and increasingly seen as unnecessary.

3. Compliance

For many small business owners payroll isn’t a core competency. And that means the complexity of work place agreements and EBAs increases the risk of costly errors. Keeping up with the Australian government’s National Employee Standards (NES) vigilance and expertise to remain compliant.
Outsourcing to a specialist payroll provider ensures that the minimum standards are adhered to.

4. Simplified reporting

Outsourcing payroll provides complete transparency and access to accurate information that doesn’t need to be verified. Simplified reporting means, as a business owner, you can more effectively plan for growth and predict changes to your staffing needs.

5. Avoid losing payroll expertise

Outsourcing your payroll means your business maintains a consistent approach to payroll management. There’s no need to induct employees and role transfer can be reduced to the functions and outputs of the payroll service.

At the end of the day outsourcing payroll services allows you to focus on the aspects of your business that generate revenue.

Talk to us today about outsourcing your payroll so you can invest in strategic resources that increase value and drive the growth of your business.

cash flow vs profitability

Cash flow vs profitability

Cash flow vs profitability.

We all know that understanding cash flow is vital to the success of your business.

And having cash reserves is important to make sure you are never left short at crucial times, such as when wages are due, and when tax and loan repayments needs to be paid. Or, as 2020 has shown us, if the unexpected occurs.

That’s why it’s important to be able to forecast your business’ cashflow.

An accurate cash flow forecast should take into account your business’ current performance across revenue, operating costs, payment habits of both, financing commitments etc.

It should also include what you know about future trends and seasonality.

Cash flow vs Profitability - What’s the difference?

Having positive cash flow is different to being profitable.

Positive cash flow means your revenue comes in on time to pay your expenses and keep you from running out of cash.

Profitability means your revenue is greater than all the expenses required to keep your business generating that revenue.

Basically, timing is the difference between the two.

An example

If you sell $1,000 of goods every month and spend $500 in a month, you will make +$500 profit.

But if you’ve paid your suppliers for the $500 expenditure within the month and fail to collect the cash from the sale of goods within the month you would have -$500 in negative cash flow.

Why it's important to understand the difference between cash flow and profitability

Unfortunately, many businesses fail due to poor customer payment collections, and not understanding the difference between profitability and positive cash flow. 

It’s important not to rely on a profit showing in the Profit and Loss statement, as it is more reflective of positive cash flow than actual profit.

When relying on your bank balance and the P&L to indicate your business performance, you are at huge risk of forgetting all of the items you are responsible for “below the fold” on the Balance Sheet.

Often, the biggest, lumpiest cash out flows that you are responsible for appear there: GST, payroll taxes, loan repayments etc.

This is why it’s important to implement forecasting in your business. A great option to implement forecasting is Futrli. 

Talk to us about how we can help you forecast your business cashflow and profitability.

Coming out stronger

Coming out stronger

Coming Out Stronger

What does the future look like?

2020 and the COVID-19 pandemic has brought significant challenges for many people, including business owners.

While we are starting to see an easing of restrictions and a return to (Covid) normal the impact of these challenges cannot be underestimated.

While we cannot be sure of what’s ahead, it’s important to be looking forward and planning for your future.
If you're a small business owner, you can become more resilient and in control by applying these few strategies.

Coming Out Stronger Strategies

  • If you have been receiving JobKeeper 1.0, forecast your eligibility for JobKeeper 2.0 and 3.0
  • Prepare and maintain a cashflow forecast with and without JobKeeper
  • Know the key dates where Government support changes, reduces, or ceases
  • Prepare a breakeven analysis for various scenarios
  • Regain perspective by booking a meeting with your bookkeeper 
  • Set a regular review meeting to review and interpret your monthly numbers and key indicators
  • Do a check of your first quarter profits and do a forecast of your future profits to work out if any 2021 tax needs to be set aside
  • Document your future plans for your business - immediate exit, gradual exit, continuation, diversifying
  • If you haven’t already done it, get your 2020 Income tax done or scheduled for completion as soon as possible
  • Review your systems and processes to see where improved efficiencies can be made, especially through the introduction of apps that can reduce paperwork (and the time involved) considerably

If you are seeking advice on business Apps, we specialise in understanding the different options for different industries and businesses. We provide you with insights and guidance on what Apps would best suit your business.

Or, if you're interested in any of these measures contact us to discuss how we can help you become more strategic, resilient, and in control.

demystifying your balance sheet

Demystifying your balance sheet

What story does your Balance Sheet tell?

Do you understand the story your Balance Sheet tells about your business? 

It’s important you understand the components of your Balance Sheet and the key ratios that measure the health of your business.

1. It measures the net worth of your business.

Your Balance Sheet is made up of all of your assets and liabilities; your net worth is your total assets less total liabilities.

Current assets are assets which are expected to be converted into cash within 12 months; current liabilities are expected to be paid within 12 months

Non-current assets aren’t expected to be converted into cash in the short-term; non-current liabilities are long-term liabilities which aren’t expected to be paid within 12 months

Your net worth is the owners’ interest in the business. In other words, if your business was to be wound up this is how much you’d be left with as the owner of the business.

2. It tells you if your business is solvent.

Solvency is the acid test for survival. If your business is insolvent, without immediate action to remedy this, it’s unlikely to survive for long. There are two components to solvency:

Current ratio greater than 1 (current assets / current liabilities)

Positive net assets (total assets - total liabilities)

If your business is insolvent, you’ll struggle to pay bills on time and you may be personally at risk. It’s imperative you seek help immediately if your business is insolvent.

3. It allows you track the strength of your business.

By comparing your Balance Sheet to previous periods, you can track whether your net worth is increasing or decreasing.

The stronger your Balance Sheet, the easier it will be for your business to survive a downturn.

For example, if your retained earnings are diminishing over time, it’s clear that you need to take action to strengthen your Balance Sheet to ensure you’ll receive value upon the wind up or sale of your business.

4. You can calculate key ratios.

Key ratios not only allow you to compare your results year on year or to industry benchmarks, they also highlight areas for improvement.

For example, calculating your debtor days may show that it takes on average 35 days for customers to pay you. If your payment terms are within 7 days of invoice, it’s clear that your debtor processes need to be strengthened.

Perhaps you calculate how long it takes inventory to sell and see it’s taking twice as long to sell this year than it did last year. Or, maybe a specific product is taking a lot longer to sell than others, which may indicate you should discontinue it. Key ratios calculated using your Balance Sheet can tell a us a multitude of things.

As a business owner you should be able to read your Balance Sheet and understand what it's telling you. 

If you need help demystifying your Balance Sheet and identifying key areas for improvement, get in touch now!

why data matters

Why data matters

Why data matters!

With cloud accounting software, such as Xero, simplifying much of the bookkeeping process, you now have greater accuracy over business numbers with less effort and time.

Yet, there is still one point of weakness.

Your data.

Data is often still manually entered. And if your data has errors, is missing information or is out-of-date, your results will reflect that.

Remember the saying “garbage in, garbage out”.

And that’s not a good thing when it comes to your business. Especially when it comes to forecasting.
When making decisions about the future of your business, getting the full picture is essential. And that means you need clean and accurate data.

When you have accurate forecasts, you can say goodbye to surprises and take better control of your business.
Businesses who consistently make errors with their data and base decisions upon incomplete data often end up in a cash flow crises. And more often than not, realise they’re about to run out of cash when it's too late to respond.

There is a direct line between accurate, up-to-date data and making better decisions for your business.

One way to improve your data accuracy is by automating as many points in your bookkeeping process as possible. 

Using apps that integrate with Xero, such as ReceiptBank and Futrli, makes it easier to get the right information you need to make the best decisions for your business.

Using Receipt Bank makes it easy to photograph snap your receipts with your phone and extract the information your accounting system needs.

No longer do you have to file away physical copies as your information and a copy of the receipt is stored in the cloud.

Receipt Bank then “talks” to your accounting software, for example Xero, and uploads your receipts.

Your information is available in your accounts system ready to be reconciled by your bookkeeper. And then Futrli uses that information to report in, predominantly, graphic form. And most importantly, provide the ability to set budgets and forecast. 

Talk to us about how Receiptbank, Futrli, and Xero can help make better business decisions.

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