Managing Cash Flow in Your Business: Everything You Need to Know

Managing Cash Flow in Your Business: Everything You Need to Know

Managing cash flow in your small or medium business is easier than you think. But there isn’t a simple trick that will instantly bring more money into your business, so if that’s what you are looking for, this blog may not hold those answers.

But we will get into how to manage cash flow in your business and also why it’s so important to do so.


Why managing cash flow in your business is so important

Cash flow management means having a good balance between money coming in and money going out. For many businesses, money going out to suppliers and other third parties may need to be processed before the money is received from your customers – which can create a big problem if not managed properly.

Managing cash flow means having enough money in your hand to cover your expenses when they are due.

It means being flexible, clever and creative.

It can often mean looking for ways to delay your outgoing payments as long as possible, while also investing ways to get your incoming payments sooner (or at least on time!)


How to manage cash flow in your business

Create great cash flow projections

You should have good quality cash flow projections for the next financial year and also broken down into quarters – at the very least. 

If you have been struggling a lot with your cash flow, you would benefit from breaking this down even further, and create projections looking into next week, fortnight and the next month or two as well. (If you have no idea where to start with this, this is something we can help with!)

By ‘good quality’, we mean intelligent, educated estimations – not wild guesses, pipe dreams or stabs in the dark at what cash might be coming in. We also mean not just hoping for the best in terms of unexpected expenses or how long you can extend lines of credit for.

Some things to keep in mind when creating accurate cash flow projections include:

  • Regular payments like rent, inventory, salaries, admin costs, and office supplies
  • Quarterly payments like BAS and superannuation
  • Including seasonal ebbs and flows in customers
  • Adding principal payments and loan interest
  • Including insurances, bills and expenses like WorkCover
  • Considering annual bills across monthly payments
  • Capital expenditure and improvements
  • Incidental expenses like advertising and IT

If you need some extra pointers, most Australian states have a dedicated business page to help you with this; we have linked to some of the main ones here:

New South Wales



Western Australia

Speed up your receivables

You should always be looking for ways to speed up your receivables, which means improving how quickly you can turn materials into products, sell them and get your customers to pay.

Some ways to improve this include:

  • Rewarding customers who pay quickly
  • Penalising or adding fees to outstanding debts
  • Looking into additional debt collection methods
  • Get deposits and run credit checks from customers
  • Issue invoices promptly and chase up payments
  • Selling old inventory to move in

Managing your payables

Look carefully for ways to reduce your costs and stagger your payments to manage them. 

Some ways to manage your payables include:

  • Look into your creditor payment terms and take advantage of this where you can
  • Make payments by EFT and track them
  • Choose which bills you pay carefully
  • Look for suppliers with good payment terms.

There are other ways to get creative with reducing your costs; if you’d like to know more please get into contact to explore your options further.

Having a Plan B for cash shortfalls

Don’t wait until the last minute or the problem is too big to handle before you have a process in place to manage cash shortfalls.

Some tips to help include:

  • Talk to your bank to set up a line of credit before you need it
  • Look into ways you can sell or lease assets rather than purchasing outright or keeping what you don’t need
  • Create good relationships with your suppliers and creditors so you have options if you run into trouble paying.


Managing cash flow: Key areas to take extra caution on

Assets and instant asset write off

In Australia, businesses can access an instant asset write-off for the cost of certain assets, which means you may be able to claim an immediate deduction for the business portion of the cost of an asset in the year the asset is first used, or installed ready for use.

There are criteria for business eligibility and also about which assets are covered and which ones are excluded. This can be used for:

  • multiple assets as long as the cost of each individual asset is less than the relevant threshold
  • new and second-hand assets.

If you need more details head to the ATO website.

Entertainment expenses – when is this deductible?

Generally, entertainment expenses are non-deductible for income tax purposes. However, some specific entertainment expenses are deductible, for example:

  • the cost of meals provided to employees in a staff cafeteria (not including social functions)
  • the cost of meals at certain business seminars
  • meals on business travel overnight.

If you need more details head to the ATO website.

Claiming GST Credits: When you can and when you can’t

You are able to claim a credit for any GST included in the price you pay for things you use in your business. This is called an input tax credit, or a GST credit.

You claim GST credits in certain situations in your quarterly BAS, under the following conditions:

  • You intend to use your purchase solely or partly for your business, and the purchase does not relate to making input-taxed supplies.
  • The purchase price included GST.
  • You provide or are liable to provide payment for the item you purchased.
  • You have a tax invoice from your supplier

You must be registered for GST to claim GST credits.

If you need more details head to the ATO website.

What you need to keep in mind when hiring a subcontractor

You can hire a professional to manage this side of your business, or just for a brief period to help get things under control. 

It is important when you do this to hire someone you can communicate well with and then make sure that you ask all the questions and arm yourself with all the information you need to – don’t just presume you are absolved of all responsibility because you have hired someone to look after this.

Make sure you know what is going on in your own business finances.


Managing cash flow: Final thoughts

Managing cash flow in your business does not come naturally to everyone, but you can equip yourself with the skills and knowledge you need to get things under control. 

Good habits now will set you up securely in the future no matter what may come for your business down the track.



About Author

Kate Gordon

With over 20 years experience in bookkeeping across Australia and the United Kingdom, Kate Gordon brings a wealth of knowledge by working with a range of clients from various industries. Covering a portfolio from small and medium enterprises to large corporations has led her to become proficient in all areas of bookkeeping.

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