Surviving the hurdles of cash flow

Maintaining a healthy cash flow can be problematic for any business, particularly if you’re in a critical growth stage. As many as nine out of 10 small to medium businesses say problems with cash flow have stopped them from growing their revenue in the past 12 months. A further one in five were unable to take on new work because of cash flow difficulties.

Common cash flow problems

Late payments from customers is a common reason many businesses experience cash flow trouble. Problems can also be caused by businesses scaling too quickly. For example, ordering too much stock, bringing on surplus staff or prices that are too high. Sudden changes, such as suppliers reducing payment terms or rent increases, can also be to blame.

If you’re nodding your head to any of the above, you’re not alone. Hear from three different business owners on how they overcame their struggle with cash flow.

How I dug my way out of a cash flow hole

Mounting unpaid invoices started to hamper Aodhan MacCathmhaoil’s bin collection business, Waster. Six months after launching, he found more and more customers weren’t paying their bills on time.

“As we started to get traction and we were picking up more customers, we were noticing a hole of a couple thousand dollars per month and that was growing each month,” he says.

“I suppose I stupidly thought everyone would pay in 14 days and then we'd pay suppliers and we'd be cash flow positive and there'd be no problems.”

Taking a multi-pronged approach, the business introduced payment plans for customers and a three per cent discount for those who moved to a direct debit plan.

The business also introduced strict payment terms and engaged a debt collection agency. But Aodhan said the most productive measure was sending tardy customers a warning letter.

His advice for other business owners is to be vigilant about outstanding debts before they cause stress and absorb valuable resources.

Taking a closer look at the books

Jen Geale, co-founder of online mountain bikes store, MTB Direct, decided to improve cash flow after a financial analysis revealed her business wasn’t turning a healthy revenue. Geale launched the small business with her husband and business partner off the back of their bricks and mortar store.

The financials for the two stores became intertwined and once they were separated, it revealed the online store wasn’t performing as well as they thought.

“When we actually sat down and transferred all the costs around and looked at the business, it wasn't standing on its own two feet,” Jen says.

“Trying to operate the two businesses using the same stock and the same employees, just wasn't a good strategy.”

To restore a positive cash flow, Geale cut back on business expenses, reviewed pricing, and lowered stock levels. She said this helped define business goals and areas of growth potential.

“I think it helped us to figure out exactly what it was we were trying to achieve, and the gap we were trying to fill,” she says.

“We started making decisions around the type of stock that we would sell. We now focus mostly on parts and accessories because we found bikes are really expensive, and they need to turn over very fast.”

Aiming for consistency

Robin Petterd, founder of digital learning business, Sprout Labs, says scrutinising finances and workflow also helped his business escape cash flow difficulties. These surfaced in the early years of the business when the company’s workflow was patchy - one month busy, the next quiet.

“The core team is about five people and when we’d win a government tender for about $500,000 we’d have to scale up to 15 to 20 people and deliver that, and then we’d have to deal with the cash flow to make sure we got those people on board and deliver on time,” he says.

He found the solution in diversifying the business. Instead of solely offering online courses, the business began selling products online, which led to cash flow consistency.

 

Cash flow management is key to business survival. It may not be the most exciting part of running your business but without it, profit and growth are impossible. Consider the below tips to put your business on the path to financial success. 
Keep your books accurate and up to date. Invoice quickly, and don’t be lenient on suppliers or customers.
Regularly review your utilities.
Are there costs you can cut back on? Separate your business and personal finances.
Build a cash reserve to cushion your business during unexpected events.
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