Free cashflow is the lifeblood of business, not only is it a sign of profitability but also provides a resource to help you grow your business into the future. Free cashflow is what’s left after all your expenses – think rent, wages, finance repayments, taxes. Having enough free cashflow in your business eliminates one of the most common business owner headaches – and taking control is not so difficult – it just requires a little planning, enlightenment and system changes.
Planning = Success
If you don’t have a cashflow forecast, this is a great tool to start with.
You can use your historical data to get started by working out your monthly outgoings, most of which are consistent month to month. This helps you see where large outflows take place and enables you to put a plan in place to plug any gaps.
Things to focus on
- Systemise your accounts payable and receivable. Make sure you’re collecting what’s owed to you within your payment terms and look at how you can better use terms you have with suppliers to keep cash in your corner longer.
- Get a forecast, if you don’t know where to start your accountant or bookkeeper should be able to help; or reach out to our specialists. This will show you where your business is going and give you something to benchmark yourself to moving forward.
- Explore how small changes in what you’re currently doing can impact your cashflow – we call this ‘scenario planning’ things like changing payment terms, investing in equipment to make you more efficient etc – we can plan this out, visualise what it will take so that you can make decisions with confidence. It’s like a Plan B for your business (or C,D,E) that helps you use your time strategically on projects that deliver big to your bottom line and cashflow.
Optimise what you’re already Doing
Another way to create free cashflow is to make some adjustments to your current operations.
- Check your pricing:
- Review your current pricing and see what you can change. Have you benchmarked yourself against competitors? Do you understand your profit per product or service and are you focused on growing your most profitable offering?
- Check your overheads
- Will making some minor adjustments to outgoings make a difference over time?
- Can you pay some items in instalments rather than annually?
- Can you invoice customers more regularly?
- Will making some minor adjustments to outgoings make a difference over time?
- Do you have a buffer?
- Do you know how much cash your business needs each month and do you know how long your current bank balance will last?
All of the above can be explored through Scenario Planning helping you to make the best call for every decision.
