Improving cash flow consistency in FY21/22


Just like the first of January brings resolutions to eat healthier, travel more, work less, or start a new hobby, the first of July allows businesses to set new financial resolutions.

The start of the new financial year presents a chance to make smart changes and get business off on the right foot for the next 12 months. And the best place to start is with one of the biggest pain points for nearly every small business KBS has worked with - your cash flow.

It's such a common struggle, but so important to get under control. Controlled cash flow is pivotal for making smart financial decisions and investing in the right areas to help your business grow. Yet for many, it isn't even on the radar until disruption hits - something that's become a peak reality during pandemic lockdowns and restrictions. It's safe to say that right now, cash flow is more inconsistent than ever.

While we can't always predict disruption, we can put in processes that allow us to be more prepared and better control our cash flow even when we take a hit. The right knowledge, approach and systems can make sure you don't give up on your new financial year resolutions a few weeks in (like we do on our gym memberships), but see them through and achieve real benefits.

Cash inconsistencies leave small business unprepared

It's small business 101: only fix something when it's broken. This approach is understandable - even necessary - when you're working with constrained time, resources and budgets. Measuring and managing cash flow doesn't become a priority until businesses find themselves without enough cash.

But by then, it can be too late to do anything about it - or, at least, anything that will significantly help with immediate financial recovery. It's a situation that has become very familiar to many small businesses over the last 18 months.

Since the beginning of the pandemic, businesses have faced many challenges - ongoing lockdowns, density limits, minimal tourism. Many small businesses have found themselves with sudden and major unforeseen holes in their cash flow. The immediate reaction was to be more frugal and keep more cash the usual to get past these hurdles - but then came government handouts.

This led to a little more comfort and stability - until it all happened again, and the government decided to be a little less generous and take a little more time with payments. It put businesses back at square one.

It is these inconsistencies that make it hard for small businesses to grow and flourish. And while COVID is a very obvious example to use, the same results can be brought on by any kind of business or industry disruption.

Three good habits to pick up in the new FY

While many small businesses are probably keen to get out of this cycle of inconsistency, they don't always have control over the disruptions they face. However, you do have control over how you manage your cash flow (and the factors of your business that influence cash flow).

What you should be aiming for is cash flow consistency. This allows you to not only cover operating expenses but have the ability to and look at opportunities, invest in new things, and deploy your cash in the smartest and most beneficial ways.

There are a few things that, you can start doing to ensure more consistency and fewer unexpected surprises in your cash flow:

  • Keep up an eye on debtor behaviour

A big part of determining cash position is ensuring debtors are paying on time. This allows you to reinvest that money and ensure you have enough to pay your creditors. So, it's important to keep an eye on changes in debtor behaviour and catch those changes before they become problematic. Putting in place a series of KPIs or reporting measurements so you can determine what areas of your business you may need to pay more attention to.

  • Use stocktake to your advantage

Because stock positions need to be declared to the tax office, stock and stocktakes are usually front of mind at this time of year. This offers a great opportunity to take a good look at turnover times. Cash invested in stock is cash you can't use for something else. Determining which lines are the best performing and whether cash is locked up in low-performing lines and could be better deployed elsewhere, can help significantly boost revenue.

  • Strategise where you put your money

When a business is making money, there are two places it can go: back into the business or into the owner's pocket. Here, it makes sense to put money in the business only to the extent that it needs it. Otherwise, personal tax situations are going to be much more agile than that of the business. You need to determine what amount of money you should leave in the business to enable growth.

Continue to adapt (with some help)

Improving cash flow and cash position is not just about measuring what's already happened - it's about looking forward to what may happen and what hasn't yet happened.

EOFY is a great time to set financial goals and look at what you have and what can be achieved in the coming 12 months. But goals shouldn't be set and forget - they need to be constantly honed, revised and restated given new information that's coming into the market. Setting and reflecting on financial goals can help you make the most money you possibly can from your limited resources.

This is best achieved if you know exactly what the financials are and what your actual position is. Then you can make smart, informed decisions about your ability to pivot, chase a new opportunity, or avoid risky situations.

It's about having a dynamic system that can develop with you. SAP BusinessOne is one such system - built for the needs, flexibility and budgets of small businesses.

  • Everything is dated, helping to keep on top of cash movement
  • Information is easily accessible and available
  • Dashboards can be set up to alert you to inconsistencies in cash flow or payments and set rules to automate follow up without extra resources
  • Budgeting tools help you to set, follow and adapt your goals over the year

As a small business, having a handle on your cash flow is insanely difficult without a solid system to help you. Have consistent cash flow that you can rely on doesn't happen overnight, but EOFY is a good time to start putting the wheels in motion to ensure you'll be in a better position should disruption hit again. (Which it will, in one way or another).

At KBS, we've been helping Australian small businesses improve their cash flow management for over 20 years. If you'd like more information or advice about improving cash flow management or implementing a system like SAP BusinessOne, click here to contact us.

About the Author: Deryc Turner

Deryc Turner

Deryc Turner has a degree in Economics from Sydney University and is a Fellow of the Australian CPA's. Since 1994 he has been advising small and medium businesses on how to maximize the value of their information systems to gain an unfair advantage over their competition

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