“It’s like your business’s life force.”
That would be one of the best ways to describe cash flow. Put simply, cash flow is the money that moves in and out of your business, for a variety of purposes.
Cash flow comes in through the purchase of products and services by your customers. It also comes through the collection of accounts receivable.
On the other end, cash flow goes out through the payment for the different expenses that your business has, as well as accounts payable and taxes.
As cash flow is an important component of your accounting needs, businesses – no matter their scale and size – should look into ways they can improve their cash flow.
Bruce Edmunds and Associates are business tax accountants providing a run-down of important points that can help businesses across Melbourne improve cash flow.
1. Evaluate and adjust pricing
Most businesses would evaluate their offerings on a regular basis. And part of this evaluation is to consider the price of your products or services. Ask yourself- should (and could) you sell products for more? Should you consider a % price rise across all offerings?
You need to find a happy medium: make sure that your business is not at a disadvantage by offering prices that are too low, but to also ensure customers are not shocked or angered by price changes.
Cheap ain’t good, good ain’t cheap…
… so the saying goes.
If you are selling your products “too cheap”, people might get the wrong idea about the quality of your goods or services. But of course on the other hand, if pricing is too high, your consumers might be turned off, leading them to head over to your competitors.
The key to this is to come to a good middle ground where you are able to find a price point that helps improve your cash flow AND attract the types of clients you actually want to sell to.
Ultimate tip: don’t be scared of increasing your prices – it’s OK to experiment!2. Update equipment and inventory
Efficiency is one of the many factors that can affect your business. To maximise it, you need to make sure that your equipment is up-to-date and your business can keep up with the latest technology and the demands of your consumers.
In addition, you also need to make sure your product inventory is updated.
If you have no reason to hold on to your excess or surplus of products in your inventory, let them go! If they still hold some value, perhaps you can set up some sort of clearance sale.
When it comes to inventory, think with your head, not your heart: cut ties to products you were saddened to see not perform as you’d hoped.
3. Introduce payment incentives and penalties
Let’s face it: businesses often find it difficult to manage the invoicing and payment processes themselves.
Don’t let this process continue to burden you: get the support you need to devise a system that would reward clients who pay early.
Perhaps you can look into incentivising those who are able to pay early (or even on time). You can offer discounts and other advantages that will benefit you both!
As for those who are not able to pay on time, you might consider a late payment / penalty process to encourage them to honour the terms of your invoice.
In the long run, this will not only improve your cash flow, but also save you time, energy and resources.
Another tip: make sure you send invoices out promptly!
4. Assess your relationships and negotiate new terms
Establishing good long-term relationships with service providers and suppliers is always a plus in any business.
And as you have created a close and harmonious business relationship, perhaps take this opportunity to discuss making some changes to your business needs and as such, your account.
Most businesses work hard to keep their existing clients, and if you’ve been a good client, you might like to request your terms be reviewed or negotiated.
You might also like to get rid of services you don’t need or no longer use.
5. Reduce overheads
There are plenty of ways you can reduce overheads in business, some of which include:
- Lease vehicles and equipment instead of purchasing
- Take the time to assess insurance, phone, and internet services
- Discover whether cloud computing technology can help reduce IT costs
- Switch from a landline phone to an online service like VoIP
- Use your current customers to do your marketing for you! Ask for Google reviews and testimonials
The key lies in taking the time to critically assess your current business situation. But beware: do not cut corners!
Are you a business owner in Melbourne searching for a reliable business tax accountant?
Every business owner dreams of running a successful business. But as we all know, for a business to thrive, there are so many factors to consider.
And as cash flow is a very important factor when it comes to your business’s financial health, you need to make sure it stays healthy.
If you looking for a professional to help you out, Edmunds’ highly qualified and experienced business tax accountants are here for you.
As certified practising accountants, the team at Edmunds can handle all your business accounting needs, including assessing and improving cash flow.