Cash flow essentials

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Cash is the fuel that drives your business. By taking control of cash flow, you can reduce the amount of money you need to keep your business running from day to day and earn a higher return.

 

Cash flow can be hard to pin down. Traditional accounting tools are designed to produce balance sheets and profit and loss statements - snapshots of your finances at a particular moment. They don’t capture your changing cash requirements through the year.

 

Even the cash flow statement in your annual accounts looks backwards, a summary of how your cash balance has changed over the last 12 months. While it can help you diagnose past problems, it doesn’t forecast future ones.

 

A key problem in managing cash flow is that many businesses also have their cash scattered across multiple banks. This makes it hard to grasp their cash flow position without time-consuming reconciliations.

 

Take control of your cash flow in three steps

1. Consolidate your banking. This simplifies administration and you’ll get complete visibility of your current position through your online banking service. You’ll save money on fees, too.
2. Create a cash flow forecast. Your forecast shows exactly how much cash will flow in and out of your business each month. It helps you identify potential crunch points and makes sure you have cash on hand to meet them. (Use our cash flow forecasting and tracking template)
3. Track your performance. From week to week you need to monitor your cash flow to easily assess your current cash position.

 

Cash flow tips

Managing stock	The longer stock stays on the shelf, the longer your working capital is tied up. Turn over excess or outdated stock, even at a discount. Focus your marketing on your products that have the highest margin. Consider changing your pricing to increase your inventory turnover, potentially making more profit while charging less. (See our case study for an example.) Aim to cross-sell low cost, high margin products.
Managing cash	Try to keep three to six months expenses in reserve. Invest surplus cash in an online savings account like the Business Online Saver to get higher returns and instant access when you need it. Every business has seasonal ups and downs. Use an overdraft or business credit card for extra cash when sales are slow. A flexible financing option like a line of credit lets you draw down funds as you need them, up to your credit limit. Then you can reduce your borrowing costs by parking working capital in your loan account until you need it.
Managing expenses	Cut paperwork and simplify expense management with electronic payment solutions like BPAY or direct credit from an online banking solution like either NetBank or CommBiz By consolidating your business with a single supplier, you can improve your bargaining power, potentially negotiating better terms of trade. Paying paper invoices costs time and money. Use CommBiz to create templates and scheduled payment files, simplifying or automating recurring payments.
Managing accounts receivable	Always issue invoices as soon as possible. Provide convenient electronic payment options to your customers to speed up payment and ease reconciliation. Have a standardised written procedure for chasing unpaid accounts and ensure your staff follows it.
Trade finance	Importing and exporting can stretch your finances to the limit because it takes so much longer to transport goods, clear customers and get them into the hands of distributors or customers. You can consider the most suitable payment terms, either cash in advance, open account (settling on agreed terms like 30 days from dispatch) or on sight after shipping documents allow goods to be released. A range of our specialist International business products can help importers and exporters manage the cash flow gap including International Money Transfers, Trade Advance, Insured Export Finance or a Letter of Credit.

 

More help with cash flow

• A Business Review with one of our Business Bankers can help identify areas to improve in your business
• Download the The big picture on cash flow booklet for more details

 

• Important information 
  As this advice has been prepared without considering your objectives, financial situation or needs, you should, before acting on the advice, consider its appropriateness to your circumstances. All products mentioned on this web page are issued by the Commonwealth Bank of Australia; view our Financial Services Guide (PDF 59kb).