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You may have had heard the saying ‘cash is king’. In Small Business, however, we argue that it is not cash that is king (although still very important to the survival of your business), but more the management of this asset that is the true king. Therefore, we have rephrased this classic to ‘cash flow is king’.

Cash flow is the number one reason why Australian Small Businesses fail, with only 50% of Small Businesses surviving past their fifth year of trading. With these staggering statistics, it should be a priority for Small Business Owners to not only understand and constantly aim to improve their cash flow position but also know the warning signs that their cash flow may be heading towards trouble. 

Below, we have listed three key signs that your cash flow may be in trouble now or in the near future and what you can do now to help solve these issues.

Warning Sign 1: Your Invoices Are Waiting to be Paid

Have you noticed that you have a lot of invoices out for payment? This could be a sign that your cash flow is heading for trouble. With more than 40% of invoices being paid late, having invoices that you need to collect payment for is not uncommon; however, if you are relying on the predicted cash flow to come through and these late payments can put serious strain on your business. 

If you have noticed that your invoices are piling up, then it is time to start chasing payments. If you are having troubles getting hold of your clients via email, pick up the phone, get commitment for payment, negotiate extended or part payments and take action to get some money in.

Warning Sign 2: Your Expenses are Increasing

Growth in your business is a great sign and shows progression. If not properly prepared for, however, this growth can also put a big strain on your cash flow. If you are looking to increase your expenses, including rent, wages and inventory costs, ensure that you have budgeted for the increase. If not, these surprise expenses could seriously affect your cash flow. As demonstrated by entrepreneur and business planner, Tim Berry , “one of the toughest years my company had was when we doubled sales and almost went broke.” Berry goes on to mention how poor budgeting and lack of cash flow almost saw his business go under, because “growth sucks up cash”. 

Ensure that before you take on a big job or scale your business, that you speak to your accountant to help prepare you for growth pains and reduce the strain on your cash flow.

Warning Sign 3: Your Sales are Slow

Slow sales can be the result of industry seasons, lack of marketing exposure or being unable to convert leads into sales. Regardless of the reason slowing sales really only leads to one thing – impending poor cash flow. 

Although your cash flow may be okay at present, if your sales have slowed you should start to look at why and fix this issue quickly.  Think about if you lost traction in your sales activity, if you have an incomplete sales funnel or if you need to retarget your marketing. Whatever the issue is, keep in mind that it generally takes two months or more to put a prospect through a sales pipeline, so if your sales are slowing, take action today to get things back on track. Understanding cash flow in your business is critical for your business beating the odds and surviving past five years of operation. Whether it is unpaid invoices, increasing expenses or slowing sales that may be affecting your cash flow, it is never too late to make changes to improve your cash flow situation. 

If you have any questions about cash flow, debtor management, upscaling your business or improving sales, contact us today for us to assist by emailing or calling our office on 07 3367 3155.

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