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How to Master Cash Flow

4 tips to master cash flow. Cash flow strategy.

Timing is everything when it comes to cash flow. There are times when all your invoices are paid at once and your cup overfloweth. Then there are times when all your debtors are behind on their invoices and you’re hit with bills, overheads, staffing costs and it’s time to pay for the next shipment of inventory. Instead of trying to master time, here are some tips on how you can master cash flow, with first-hand advice from good business owners.

1. Forecasting helps avoid cash flow storms

The first step in mastering cash flow is forecasting your finances. Forecasting doesn’t need to include complex algorithms. It can be simple and still save you a lot of headaches and cash flow problems. Even if you’ve only been in business a short period of time, you can use that data to forecast the peaks and troughs of incomings, outgoings and potential cash flow bottlenecks. Once you have been in business for years, your forecasting can be more accurate as you draw from multiple years of peaks and troughs.

Founder and Director of Francesca, Hannah Vasicek used financial forecasting to help increase revenue during her peak season. Hannah now knows the percentage of annual revenue each month of the year is likely to bring into the business. By forecasting, she’s managed to ensure strategic and sustainable growth for her business year after year.

Forecast inventory needs

Financial forecasting helped Hannah identify periods of low working capital. As is so often the case, Francesca’s quiet months was the exact time they needed to be investing in inventory for the busy Christmas sales. Hannah realised ahead of time that if she invested in inventory during her quietest time of year, she could massively increase profits during their peak period. So she used a transparent business loan from Moula to cover the gap in working capital.

Our business is very seasonal, in the middle of the year we’ll have a month that is 4% of our yearly revenue and over Christmas that will jump up to 20%. So we need to start making and producing in those quiet months so we can have stock ready to make the most of those busy months, and working capital is crucial for that…That’s when we reached out to Moula.

– Hannah Vasicek, Founder and Director of Francesca.

2. Separate your accounts and know when to outsource

Being a business owner doesn’t mean you’re a good accountant. In fact, most business owners don’t have a background in finance but find themselves dealing with it as best they can as a matter of necessity. A good starting point is to keep your finances simple. And the first step should be to separate your personal and business accounts.

A common mistake with new businesses is to keep personal and business finances in the same account. While this is often a result of convenience, it can have a profoundly negative affect on your business finances. To forecast accurately, you need an accurate reading of your business’ comings and goings. If those are confounded by your personal expenses, the forecast can start to look grim.

To make your business finances even simpler, outsource them. If you dread working on your business finances, find help. Not only will it help you avoid mistakes and shift your financial headache into an informative business tool, it will free up time (and reduce stress) so you can concentrate on other aspects of your business. A finance  professional can create a cash flow statement that can help you manage your cash. Learn more from What Is a Cash Flow Statement?

3. Stack your payment terms and follow up with a velvet fist

It’s true, you need to spend money to make money. And it may seem obvious, but having working capital can be difficult, especially when you’ve invested so heavily in inventory, staff costs, marketing, overheads, and so much more. Then one day, you notice your working capital has been frozen in by these necessary expenses and late invoices. The opportunities to grow and make money are there, but your business account is bare. Tammy Greig, Co-founder of My Little Giggles, knows the challenges of debtors not paying invoices well.

“That challenge was made worse by larger companies not taking us seriously enough to pay our invoices on time. They think they can push you aside but that creates a serious problem for our cash flow.”

– Tammy Greig, Co-founder of My Little Giggles.

4. Follow up with your debtors to improve your cash flow

The first step in minimising the impact of invoicing on your cash flow is to ensure your invoicing strategy is set up to work for you. There may be industry standards for payment terms, but you can set your own so they work in your favour. Depending on your industry, you could ask for a larger deposit upfront, 14-day payment terms, or even a discount for early payment – this is a more amicable way of demanding a late payment fee and can be an effective incentive for businesses. Xero’s guide on invoicing is a handy resource.

Her advice is to keep at them. Be polite but firm and continue to follow up invoices. It may seem impolite, but unpaid invoices can be devastating for small businesses. While it’s not always the magic negotiating tool you’d like, staying polite and persistent can help. And staying on top of sending and following up invoices can make a huge difference to cash flow.

A helpful tip is to use your calendar to schedule follow-ups. When you send out an invoice, add an event into your calendar with a note to follow up the invoice if it’s still unpaid by a certain date. And phone calls followed by an email tend to work better than just an email.

5. Business loans can help bridge cash flow challenges

If you forecast your finances, manage your inventory, and keep your cool while you follow up your debtors (again), and you’re still encountering cash flow challenges, a business loan could help.

If you have a huge asset to secure a loan and you can afford to wait 4-8 weeks for an answer about your loan, banks are an option. The Royal Commission into the big banks’ small business lending will likely improve their business loan offerings but it may take some time to get there – and the application time and eligibility will probably be restrictive.

How an unsecured business loan can help

The majority of small to medium enterprise businesses don’t have an asset to use as security for a secured business loan. And if you need funding in days, not months – a transparent (and preferably fee-free) unsecured business loan can be a good option.

Owner of Godspeed, Martin Kirby, needed a working capital business loan to take advantage of a growth opportunity, but the banks weren’t an option for him.

“So often timing is critical to getting wins on the board. A golden opportunity might pop up and if you have to try to get a loan from one of the big banks it’ll take ages and they don’t care about the potential in the opportunity, they just want to see your books.

I’ve spent the last 10 years in a punk band, so I can’t get a bank loan. I don’t have a credit history. I lived overseas so I don’t have anything the big banks need to lend to me. There are so many challenges for small businesses that are about how to take that next critical step in your growth and that’s where the Moula loan helped.”

– Martin Kirby, Owner of Godspeed.

How an unsecured business loan can help with cash flow

Some factors affecting your cash flow are out of your control. Sales will fluctuate and business expenses can pop up unexpectedly. But the tips above can help you address some factors that are within your control, and help you improve your cash flow management. For more cash flow tips, read Cash Flow Management: Why Is It Crucial for Business Success?

Find out more about unsecured small business loans from Moula.


Sharing important SME information, customer success stories from good businesses around Australia and practical good business guides.

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