We often hear "I'm profitable but I don't have any cash".

Every business person knows that cashflow is paramount to a successful business just like profitability. But a lack of cash does not necessarily mean you don't have a profitable business, you may have commitments such as loan repayments, leases etc. that may be drawing more cash than your business is currently generating.

BUT how do you manage your cashflow on a regular basis other than looking at what's in the bank account now (which is really just a reflection on past cashflow).

There are some simple steps to take to managing your cashflow -

Step   1. Establish where you are right now
Step  2. Develop timelines for your current position
Step  3. Determine what cash will be coming in and going out.
Step  4. Look at a longer time frame
Step  5. Determine if you have a shortfall or surplus
Step  6. Review, Review, Review

               REMEMBER in a small business CASH IS KING.


The Difference Between Profit And Cash

Throughout history there are many examples of profitable businesses going out of business because of poor cash flow. You need to make sure that you are not one of them.

Therefore it is vitally important that you understand the difference between profit and cash flow - they are not the same thing.

Profit is the amount of money the business makes over time (this money may be caught up in receivables, inventory, assets, loans etc.)

• Profit is the amount of money the business makes over time (this money may be caught up in receivables, inventory, assets, loans etc.)

• Cash is how much money you have in the bank or that you need to have to run the company

•  Cash flow is the movement of cash both in and out of the business.

You need to manage the movement of cash (your cash flow) on a regular basis and ensure that if you have a short term shortfall you have a long term surplus or else you will end up out of business.

If you have more cash coming in than going out you have positive cash flow which is a good thing and will allow you to retire debts, invest in productive assets etc.

If you have more cash going out than coming in you have negative cash flow which is not necessarily a bad thing in the short term but to not identify why and address it is a bad thing. Short term negative cash flow could be for a number of reasons including inventory purchase cycles (i.e. Buying up big before a sale period), asset purchases, loan repayments etc. You need to know why and how long the shortage is going to last and address it.


How To Manage Your Cash

Managing the cash flow of your business must be of the highest priority for any business no matter how big or small. Here we'll give you some insights into how to better manage your business cash flow.

The first thing to do is to predict you cash flow for the next year or quarter.
Don't think that you need to have some wizz bang computer program or even a great simple to use model like our FREE CASH FLOW MODEL. You can get started on your cash flow calculations with a piece of paper, a pen and a calculator.

The predictions should be realistic, accurate forecasts of your real expectations for the business now and into the future. Remember to include all GST in your predictions and remember to include when the GST is to be paid to the government along with you PAYG.

Only put the money into the model when you expect to receive it or pay it not when you make the sale or purchase an item.

Remember the key is to collect quickly and pay slowly.

Tips And Tricks

The first thing to understand about cash flow management is that there are not tricks to it, if you don't have good cash flow and good cash flow management in your business there are no tricks to overcome this and it will end up coming back to haunt you.

The good thing is that there are a number of tips to help you better manage your cash flow.

Get Your Cash In Faster
• Make sure that you deposit any cheques, manual credit card slips and cash into the bank regularly don't leave it until the end of the week. If possible get your customers to pay directly into your bank account by including your bank account details on your invoices.

• If you currently have 30 day terms think about making them 15 days, perhaps you can offer an early settlement discount.

• Have a clear credit policy, do credit checks on all new customers.

• If a customer is late in paying - call them straight away and overcome any reasons not to pay you such as they don't have the invoice etc. If they still don't pay send a letter and a follow up phone call, if they still don't pay contact a solicitor or accountant.

• When all else fails contact a professional debt collection agency such as Optimum Recoveries.

Paying Slower
• Use all the credit terms your suppliers offer if it's 30 days for example don't pay in 15 days.

• Use electronic banking where possible that way you can determine when the money comes out of your account.

• Don't pay late unless you have to as this will build up a good rapport with your suppliers that may need to be used in the future if cash dries up.

• Don't rely on just one supplier if possible as they will be able to dictate terms to you not the other way round.

• Use credit cards where you can (you can get up to 55 days interest free with some cards).

Manage your inventory
• Excessive inventory is often a pitfall for cash so you need to manage it well.

• Check how often thins move or in many cases don't move.

• Have a stocking policy - don't buy a quantity of items unless you have a history of them selling.

• Check for obsolete stock (get rid of it if it is too old) - dead stock breeds dead stock).

What to do if you have a shortfall
• Contact your bank straight away.

• Determine which suppliers you must pay and ration your funds.

• Contact suppliers who won't be paid and let them know.


                                                      Here are 10 quick tips to help you

1. Make sure you forecast your cash flow using a simple program such as our FREE CASH FLOW MODEL.

2. Manage your debtors - if they are overdue call them.

3. Manage your creditors - don't pay bills early unless there are discounts involved, but don't pay them late.

4. Don't have too much stock (inventory is a great user of cash)

5. Make sure you invoice regularly and as soon as possible after completing a stage or a sale.

6.Review insurance policies annually (you can save $1000's by checking around for a better deal)

7. Make sure your credit facilities are right for your needs.

8. Look at areas where you have hostage cash caught up in unnecessary assets.

9. If you can't make a GST payment, contact the Tax Office before it is due to let them know and arrange a payment schedule. Don't ignore it as penalties can be imposed.

10.  If you have a cash flow shortage and aren't able to pay your creditors or loan repayments contact your creditor or bank early to organise a payment schedule.



At Brisbane Financial Controllers, we have cashflow models that can help you determine your position, we have trained qualified consultants who can help you manage your cashflow needs and help you take control of your business.

If you would like a free copy of a cash flow model or would like a business management and cashflow consultation, please contact us using by clicking this link.

Cashflow Management
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