Practical Cashflow Tips for Small Business Owners

20 Aug

Managing cashflow is one of the most critical aspects of running a successful business, especially in New Zealand’s current economic state. Proper cashflow management ensures that your business can meet its financial obligations, invest in growth opportunities, and weather unexpected challenges. In this guide, we'll share essential cashflow tips tailored for New Zealand businesses, and explain how Affinity Accounting can help you stay on top of your finances.

1. Create a Cashflow Forecast

A cashflow forecast is a roadmap for your business's financial future. It helps you anticipate cash inflows and outflows, identify potential shortfalls, and make informed decisions. At Affinity Accounting, we can help you with this.

Steps to Create a Cashflow Forecast:

List Income Sources: Include all expected income streams, such as sales revenue, interest, and other receipts.
Estimate Expenditures: Account for all expenses, including fixed costs (rent, salaries) and variable costs (inventory, utilities).
Analyse Cashflow Gaps: Identify periods where expenses exceed income and plan accordingly.

2. Maintain an Emergency Fund

Unexpected expenses can arise at any time, from equipment breakdowns to sudden market changes. Having an emergency fund ensures that your business can handle these situations without disrupting operations.

Tips for Building an Emergency Fund:

Set Aside Regularly: Allocate a portion of your profits each month into a separate emergency fund.
Review Fund Levels: Periodically review and adjust the amount based on your business needs and risks.

3. Optimise Inventory Management

If you run a business that has inventory, holding too much inventory is something you need to look out for. Holding too much ties up cash that could be used elsewhere, while too little inventory can lead to lost sales. Striking the right balance is key to maintaining healthy cashflow.

Inventory Management Strategies:

Monitor Stock Levels: Use inventory management software to track stock and sales trends.
Negotiate Terms with Suppliers: Arrange favourable payment terms with suppliers to reduce upfront costs.
Implement Just-in-Time (JIT): Adopt JIT inventory practices to minimise excess stock and reduce holding costs.

4. Improve Receivables Collection

Ensuring that your customers pay on time is crucial for maintaining cashflow. Implementing robust receivables collection processes can help you get paid faster.

Steps to Improve Collections:

Set Clear Payment Terms: Clearly communicate payment terms to customers before starting work.
Send Prompt Invoices: Issue invoices immediately after goods or services are delivered.
Follow Up: Regularly follow up on overdue invoices with friendly reminders.

5. Control Expenses

Keeping a close eye on your expenses helps prevent unnecessary spending and boosts your cash reserves.

Expense Management Tips:

Review Regularly: Periodically review all business expenses to identify areas where costs can be reduced.
Negotiate Contracts: Renegotiate contracts with suppliers and service providers to secure better rates.
Implement Cost-Saving Measures: Encourage energy-saving practices, reduce waste, and streamline processes to cut costs.

6. Leverage Technology

Utilising technology can streamline financial management and improve cashflow visibility.

Technology Solutions for Cashflow Management:

Accounting Software: Use cloud-based accounting software like Xero to track income and expenses in real-time.
Cashflow Management Tools: Implement tools that provide cashflow forecasting, budgeting, and scenario planning capabilities.
Automate Payments and Collections: Automate recurring payments and collections to ensure timely transactions.

7. Hire A Professional

Partnering with experienced accountants can provide you with valuable insights and strategies to optimise your cashflow.

How Our Accountants Can Help:

Cashflow Analysis: Conduct detailed cashflow analysis to identify trends and potential issues.
Strategic Planning: Develop customised cashflow strategies tailored to your business needs.
Ongoing Support: Receive continuous support and advice to ensure your business remains financially healthy.

At Affinity Accounting, our Wellington accountants specialise in helping businesses manage their cashflow effectively. Whether you need assistance with forecasting, expense management, or tax planning, our team is here to support you every step of the way.

Contact us today to learn more about our services and how we can help your business achieve sustainable financial success.

Affinity Accounting is a Wellington accounting, tax and advisory firm serving clients across New Zealand.

Dylan Guitry