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Cashflow tips for small business owners
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Cashflow tips for small business owners

Hi 123 2 WEB Blog readers, As any small business owner will tell you, cash flow is one of the first things they think about when they wake up in the morning and one of the last things they think about when they go to sleep at night.

Here are a few ideas to help you manage your cash flow;

1) Stock – keep a close eye on your stock levels. You should calculate your stock turnover ratios and try to keep the turnover as high as possible. You can calculate your turnover ratios by dividing your average monthly cost of sales by your total stock holding. For example, if you sell cars and you sell an average of 5 cars per month which you buy for $10,000 each then your average cost of sales will be $50,000 if your current stock level is 50 cars at a value of $500,000 then your stock turnover ratio is .1. What this means is that it will take you 10 months to clear your current stock levels. As you increase your sales levels or decrease your stock levels this number will increase and you will improve your cash flow.

Another area to look at with stock is slow moving and obsolete stock. If stock items are not moving then you need to work out a strategy to get them out the door. You could possibly put them on sale or offer a discount off those items when customers buy other stock items etc. One other alternative is to have an online shop attached to your website and use that shop to sell slow moving or sale items. (If you don’t have a website or online shop, then talk to your web design company. Alternatively talk to us at 1232WEB about website design and getting you onto the internet).

2) Debtors – Another big one is the management of your debtors. You need to actively manage your receivables and get your cash in as quickly as possible. To help with this you could offer early payment discounts or possibly encourage people to pay by credit card (make sure you negotiate a good rate with your bank or PayPal). You should also ensure that you have email addresses for all of your customers and set up some standard payment reminder emails to push them along a bit.

3) Creditors – There are two potential approaches to payables. Firstly, if your bank balance is not looking too bad then you can take up early payment discounts that the suppliers are offering and save a bit on your stock. If your suppliers aren’t offering any then you can ask them for an early payment discount. The worst they can say is no and you may be surprised at the response you get. The second approach is that you push the payment out to the due date. Most accounting packages will allow you to schedule your payment dates and if you don’t have an accounting package you can set it up in a spreadsheet. I would not recommend pushing your creditors out much further than their due date. If you have issues making the due date, give them a call and tell them when they can expect payment. If you burn your creditors you can end up getting a bad credit history and that can take a long time to recover from.

4) Management of your bank accounts – A lot of cheque accounts and everyday accounts pay minimal or no interest. Try to keep most of your cash in interest bearing accounts when you can and move it to your cheque or payment account when you need to make payments. Negotiate with your bank on fees or interest rates paid. A lot of banks have a degree of flexibility with their fees.

123 2 WEB understands that cash flow is one of the biggest issues facing small businesses. For that reason, when we set up in web design and web development we decided on a payment model whereby we would charge our customers by the month. We are totally transparent with our charging so the customer knows exactly what they will be charged for their web design and when that charge will go through each month. If you need to get a website built then contact us at sales@1232web.com.au, we have all-inclusive website packages starting at $35 + gst per month.

Cheers

Neil Duncan

Managing Director

123 2 WEB Pty Ltd

Web Design Oatley, Sydney Australia

Date posted: 2011-04-06 | posted by: 1232blog



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