Keeping on top of your cashflow is even more important during tough economic times.
With rising inflation, cost of living pressures and supply chain challenges still evident, cash is likely to be tight over the coming year and beyond.
Why is cash flow so important?
To keep your business operating, you need enough money coming into the business to cover your outgoings – with enough surplus cash to deliver a profit. When a recession begins to hit, this can have a significant impact on your income. Consumers will have less disposable income to spend on your products and services. Business customers will be looking to reign in their spending on suppliers. As a net result, your business is likely to make fewer sales and will bring in smaller revenues.
This means:
- Reduced income coming into the business
- Less cash in the business to cover your operational expenses
- Not enough money in the bank to pay suppliers, utility providers or payroll costs
- In the worst-case scenario, insufficient cashflow for you to continue trading.
What can you do to improve your cashflow situation?
The more informed you are about your cash position, the more you can do to prepare for any cashflow gaps. It’s this foresight that can make all the difference when you’re battling against tough external economic forces and a downturn in sales. If you want to safeguard your cashflow, these are some sensible steps to take:
1 – Switch to cloud accounting
Accounting and finance technology has moved on in leaps and bounds in the past decade. The latest crop of cloud accounting platforms all offer insights into your cash position. These software tools will generally offer real-time data and up-to-date numbers for your business performance. We highly recommend you look into Xero, which provides business owners these benefits, anytime and on any device connected to the internet. Talk to us today about how you can utilise Xero Accounting software in your business today.
2 – Integrate with cashflow forecasting apps
Cloud accounting platforms let you add third-party apps to create a custom app stack of helpful business tools. There are plenty of cashflow forecasting apps to choose from, giving you the ability to forecast your future cashflow position. If you are already using Xero accounting software in your business, then some business forecasting apps that are trusted by Xero include: Fathom, Spotlight and Futrli. Chat to our team today to learn how you can utilise forecasting apps in your business.
3 – Plan ahead for the cashflow gaps
If cashflow forecasting identifies cash shortfalls coming up, be proactive and take action. This would include strategies at generating extra cashflow or raising extra finance to fill that hole. That could mean extending your bank overdraft, taking out a small business loan or taking out an invoice finance facility with a lender. Of course, it’s always best to seek expert advice before making big financial decisions.
4 – Look for opportunities to cut your overheads
One way to even up your cashflow is to cut down on your expenditure. If you can cut back on overheads, expenses and unnecessary or outdated costs, this can help you re-balance your cashflow, even when cash is getting tight. Look for cheaper suppliers, buy in smaller quantities and take every opportunity to cut costs and keep your spending more sensible.
5 – Update your prices and your sales strategy
Raising your prices is one way to bring in more cash, with the same volume of sales. But it’s a balancing act. Increasing prices too high can alienate existing customers and could result in a loss of customers, but if you can find the sweet spot for your pricing AND also drum up more sales, you can quickly increase revenue and give your cash inflows a healthy boost. Have an idea for a new product or service that does not require any additional resources? This can be a low to no-cost option to generate more cash and could gain new customers.
6 – Review your cashflow regularly
It’s essential to look at your cashflow reporting regularly, not just at period-end. This is particularly important when economic times are tough. With cloud technology, it has become far easier to obtain this information which can help you make informed business decisions to keep the business focused on operations.
Talk to us about updating your cashflow processes
With your business in a healthy cashflow position, you can combat inflationary and cost of living pressures. As discussed, there are many ways to improve your cashflow position, book a meeting and let’s see how we can improve your cashflow processes.
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