Sustainable Cashflow is the key…“To boldly go where no man (or business) has gone before”*
If you take a moment to think back to why you started your business, you’ll remember that you believed you could generate greater wealth and a better lifestyle as master of your own destiny.
Strong and sustainable cashflow is the essential element that will enable you to achieve that goal, and boldly go where no man (or business) has gone before. Read on to find out how you can achieve sustainable cashflow.
Business owners who want to grow their business, as well as their personal prosperity, need smooth and sustainable cashflow.
Sustainable cashflow provides choice.
Strong cashflow allows you to grow and invest in valuable assets without the need for, or cost of, an external financier.
Consistent and predictable cashflow provides a safety net that affords you the luxury of time for thoughtful decision making rather than panicked responses when unexpected or emergency issues arise.
Sustainable cashflow is a constant theme that underpins just about every conversation I have with my clients.
It is, in my opinion, the key to business longevity, success and personal prosperity as all decisions and business functions – good and bad – stem from and in turn affect your cash position.
While the general concept of sustainable cashflow is pretty straightforward, the reality of regular revenue inflow that provides sufficient cash in advance of outflowing cash necessary for debts and other financial obligations, is usually significantly more difficult in practice.
Effectively managing your cash ins and outs involves at least three key considerations: effective financial management systems, tax planning and business advice.
Addressing each of these matters will enable you to competently forecast your cash position and implement actions that will enable your business to be financially safe and well prepared to take up opportunities that can present at the least opportune times.
1. Effective Systems
Your ability to immediately access accurate financial information will empower you to make good decisions and act on them. Understanding how much of your cash is tied up in debtor days, stock turnover, payroll and operating expenses will guide your actions.
For example, if you’re not getting paid and your debtor days have escalated, something is wrong and you need to fix it. A recent Dun & Bradstreet [1] article indicated that research revealed Australian small businesses were good payers, settling their accounts in a ‘record-low’ 11.7 days!
2. Tax Planning
Planning in advance can avoid paying unnecessary tax, but it also provides options for timing your tax payments. For example, bringing forward or deferring major capital transactions or by making the most of tax effective structures including the use of various forms of trusts, a company or even an SMSF structure that can help minimise your tax obligation.
3. Business Advice
The fact is, businesses go through cycles. When I advise clients, I analyse their financial reports not only to check past performance, but to identify any emerging indicators or trends that may have potential to accelerate or derail plans.
While some businesses have pronounced seasonal matters they need to manager, for others, issues including currency fluctuations and government announcements such as a pending election or new legislation, can cause changes in business confidence which can change cashflow patterns.
Informed professional insights will help you successfully navigate the issues that affect cashflow and business growth; create surplus cash though better profit practices; and use the surplus cash to invest in worthwhile assets that build the value of the business AND your personal wealth.
Advice will also alleviate the stress of ‘chasing your tail’. This is because a clear understanding of your business and cash position will create financial self-assurance.
So, what should you do next …
Step one is to fix your accounting system. If the thought of updating your software is daunting, give me a call. I’ll arrange a systems audit to identify what needs to be done, an order of priority and how to go about it.
Next, and once we’re confident your systems data is current and correct, we’ll analyse your past, present and most importantly, your future financial position. Through this process I’ll identify immediate issues needing your attention and the steps to be taken.
I’ll prepare a strategy for improving cashflow. This will involve regular meetings and advice to achieve, then maintain your optimum cashflow position.
For more information about sustainable cashflow strategies, system design, business advice, Tax Planning and our CFO services, please contact me on shane@makecentsaccounting.com.au
Click here for earlier articles in my Live Long & Prosper series:
#1: Set a course for smooth cash flow – Make it so!
#2: Systems – Logic is the beginning of wisdom, not the end!
#3: Tax Planning – Insufficient facts always invites danger.
#4: Sustainable Cash flow: To boldly go where no man (or business) has gone before
*Star Trek Space: The Final Frontier
[1] Australian Late Payments Analysis: Small business leads pack to settle bills faster (22 May 2018) http://dnb.com.au/article-tpa-1Q18-report.html#.Wwn9pEiFM2w
This information (including taxation) is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Make Cents Accounting strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances.
