Lack of cash is one of the biggest stressors for business owners; but at the end of the day, money is both a fact of business and a part of life, writes Suzzanne Laidlaw business planning specialist.

Putting in the learning around money gives you the advantage of being able to adapt quickly in the face of adversity; knowing that your business can provide for your family, pay the business bills and make sure your mortgage is paid.

Now more than ever, through the challenges that COVID-19 has presented, business owners should be assessing their cashflow as they navigate through economic uncertainty. Money in the bank doesn’t necessarily mean you’re making a profit or heading in the right direction. The goal of any business is to have profits at the end of each month, as well as being cash flow positive. Here are my top 3 tips to bridge your cash flow gaps:

1. Set up a 3-month Cashflow Projection

Sometimes people see a profit at the end of their Profit & Loss (P&L) statement but are confused why that’s not resulting in money in the bank. The reason is, cashflow comes from both the Profit & Loss and the Balance Sheet. Your P&L measures your business profits based on your revenue(sales), less the cost of goods and fixed expenses, however most people forget to take into account their Balance Sheet items such as loans, GST liabilities, PAYG withholding, car or equipment repayments, credit cards etc.  A cashflow projection is the conduit between the P&L and Balance Sheet, showing all cash in and out to determine whether your business is predicting positive cash flow or not, and keeping you fully aware of the upcoming cash movements. This way if negative cash flow is predicted, it won’t be a surprise and you will have plenty of warning to do something proactive about it.

There’s a saying, “What gets measured gets managed”. If you’re looking at improving your cash gap, the first thing you need to do is start to track your cashflow. So many business owners don’t track their cash, resulting in them having no idea if more is coming in than going out.

2. Strategically Bridge the Cash Gaps

Through my decades of experience as a business owner and coach, some of the tried and tested ways I have seen successfully implemented to get cash in the bank quickly, are:

• Have a debtor’s system in place – If you are organised, systemised and consistent with your debt collection, you’re more likely to receive your money on time.
• Make it easier for customers to pay you – Most accounting software allows the option for clients to pay direct online, or you can set up an auto direct debit for regular ongoing payments. For onsite jobs, a mobile EFTPOS device is wonderful so clients can pay you on the job (rather than trusting them to manually pay later).
• Reduce old, slow moving or dead stock – Ask for consignment or negotiate payment terms, or even ask your suppliers if you can pay a deposit on stock with the balance due on delivery.
• Focus on selling products that have a higher margin – Selling more products with a higher margin is a sure-fire way of making more profits with less effort.
• Match your billing cycle with your major suppliers – To avoid lumpy cashflow. Most people don’t care when you pay, as long as you pay!
• Introduce staggered payment terms – Adjusting your payment terms to cover your costs along the way is a great way to reduce gash gaps (for example, take a 50% deposit upfront to cover stock costs, then 25% at the midway point to cover subcontractor fees, with the final 25% payment due on completion).

3. Proactively Budget for Profits

Creating a 12-monthly Budget (by looking at the future, based on learnings from the past), can help you to trim excess spending, where possible. Especially through COVID, many businesses have taken a closer look at where they can cut back (for example, unnecessary subscriptions, travel expenses and insurance costs).

I have seen financial stress cause many problems for business owners that result in horrendous side effects caused from the pressure.  Broken relationships, alcoholism and health problems are just a few of the effects I witnesses. But, it doesn’t need to be like this! If you are willing to invest time into tracking your cashflow and working on strategies to boost the cash in your business, you will gain more than a valuable skill. You’ll start to learn the quickest and easiest ways to foresee and bridge any cashflow gaps, get composure of knowing what to expect financially and have the peace of mind of knowing exactly where you stand.