Profit tells one story but cash flow tells the truth. “Understanding your operating cycle – or cash-conversion cycle – which is the time between when money leaves your business and when payments actually hit your account, can be a game-changer for growth,” says Gavin Smith, finance coach and owner of The Profit Analyst.
Look at your financing gap
A healthy cash flow keeps your business going day-to-day. You can be making sales and showing a profit on paper but if cash is tied up in unpaid invoices or stock, you might struggle to pay bills. “It’s normal to have money moving in and out,” says Tess McCormack from CommBank’s Business Bank. “But when the timing doesn’t line up and there’s more going out than coming in, you can feel the squeeze.” Smith agrees: “Say you’re an electrician. You buy cable on Monday, finish the job Friday, send the invoice and wait 14 days for payment. That’s a 19-day cycle. The longer it takes cash to come in, the harder it is to pay wages or take on new work.”
Get clear on your cash-flow rhythm
Not sure where to start? The first step is understanding your numbers. “Not having a cash-flow forecast is like living on a river without a tide chart,” says Smith. “You need to know what’s coming and going – and when.”
Take an hour to map out when money typically flows in and out. Spot where you’re waiting on payments or over-ordering stock. Your accounting app or even a simple spreadsheet can help you see trends and predict tight spots before they happen. McCormack suggests writing down inflows and outflows for the next three to six months. “You’ll get a much clearer picture than just relying on your bank balance.”
Tighten your operating cycle
Once you understand your timing, look for small changes that keep cash moving. The shorter your operating cycle, the freer your cash. Meaning you can grab opportunities when they come.
- Invoice fast: don’t wait until the end of the month – bill as soon as the work’s done.
- Follow up early: a friendly reminder before the due date helps cash land sooner.
- Ask for part payments: deposits or milestone payments keep income more steady.
- Negotiate with your suppliers: extending payment terms by even a week can help ease pressure.
- Be smart with stock: buy what you need for the job – not a warehouse full.