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How to Manage Cash Flow in January

The silly season is over, now it’s time to get stuck into serious business.

According to Kochie’s Business Builders, more than 63% of Australian small businesses suffered cash flow issues in a recent 12-month period. More than that, they’re at risk of struggling to pay employees. The results weren’t broken down by month, but we’ll hazard a guess that January doesn’t look ‘sunny’ for every business owner.

So, here’s some cash-money tips to get you through the January doldrums. These tips should come in handy for the rest of the year too.

Chart your cash flow

Good accounting software will make your life richer in more ways than one.

To start, you’ll want to see a snapshot of all your inflows and outflows. That means, sales of goods or services in addition to accounts payable. No point just looking at recent weeks or months, but get an idea of money flowing in and out of your business over at least 12 months.

This is more a matter of general hygiene than anything else, and post-holiday is clearly a good time to do it. This is needed for business loan applications, anyway.

Where do you see the biggest differences between income and expenditure? Check for patchy periods and diagnose your dips into negative territory.

If earnings recessions tend to happen around the same time each year, you may consider staggering payment dates to ensure inflows better align with outflows or reducing payment terms. You can set up ageing summaries to work out who’s taking the longest to pay. There’s a way to be a pest, and there’s an art to being polite.

‘Tis the season for testing

You may be thinking, that’s all well and good in retrospect, but what can I do right now? Well, you’re in luck, because you’ve come to the right place for that too. January may not be the season to be jolly per se, but whether people, products or processes, it certainly is the season for trying something new.

Consider adjusting your margins and changing your pricing. If you’re in the services sector, this may prove tricky, although you could consider trading goods and services, otherwise known as bartering. If you’re in retail, you can easily lower or raise your margins depending on seasonality. Maybe you have a $50 hair product and you sell 100 of these items per week. If the cost price is $10, then $5000 in revenue is pretty sweet. What about pulling the half-price lever and tripling your sales in the month of January? Even better.

Remember, nothing is forever. You could always test different pricing for a week or two. On that note, you could also test different trading hours. If December has come to be known for longer trade, why can’t your January become known for shorter trade? You’re in control here.

Is it really that bad?

If we’ve found you here, maybe, but there’s also a chance that probably not. As a general rule of thumb, it’s good enough to have enough cash on hand to last you approximately 3-6 months. That way, a rough month is neither here nor there, and lack of cash flow won’t disrupt your flow.

After writing a business plan and budget for the upcoming year, and putting some of this theory into practice, consider asking your lender for some degree of flexibility.

Scottish Pacific’s recent SME Growth Index revealed more than eight in 10 business owners dip into their own pockets to fund growth. This may or may not be ‘business-critical’. If you’re feeling the pinch, and our tips just don’t cut it, you may want to consider a business loan.


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