Mastering Cash Flow Management

Although poor cash flow management is regularly identified as the undoing of many small business owners, the good news is that it doesn't have to be.  

Cash flow management is crucial for any business. When done well, it enables business owners to meet their existing financial obligations, in addition to having a plan for the future. Despite this, operating cash flow is something that many enterprises continue to struggle with. 

In fact, recent figures from Xero indicate that only 54.2% of Australian small businesses are cash flow positive. A lack of short term cash flow is one of the primary reasons why businesses seek finance or capital investment, which can only add extra pressure to traders if not managed correctly - so how do you get on top of it?

Understanding How Cash Flow Management Works 

In simple terms, positive cash flow is the term used when cash coming into the business is greater than cash going out during the same period, and is considered to be the essential for every successful business. 

Along with staying in the green, healthy cash flow can help your business to - 

• Identify clear goals to help you to decide on where you want your money to go

• Get real clarity on your regular expenses, when they're due, and your spending habits

• Analyze where and how you can cut down on operating costs 

• Enable you to put funds aside to cover you for a rainy day 

• Get up to speed on the true scope of how healthy your brand’s financials are 

Successful cash flow management more or less means that as a business owner, you’re not constantly falling short when it comes to paying for your expenses. To further expand on the concept, operating cash flow, or simply OCF, is a measure of the amount of cash generated by a company's normal business operations.

In comparison, financing cash flow operates on the other end of the spectrum.  When calculated correctly, the figure should show the net flows of cash that are used to fund the company and its relevant capital. Financing activities include transactions involving issuing debt, equity, and paying dividends.

To get a better understanding of how a brand’s cash flow is looking, many businesses conduct a cash flow forecast. Much like many other economic projections, cash flow forecasting is the process of obtaining an estimate or forecast of a company's future financial position, and a cash flow forecast is typically based on anticipated payments and receivables. 

The end of the financial year generally provides a good opportunity for business owners to address their cash flow management strategy. In the early days of starting a business - particularly if it’s a start up or “side hustle” - many operators make the mistake of blurring their business and personal finances. If not separated, it’s impossible to get a scope of your true cash flow. 

For established operators, a lack of cash flow can be improved by staying on top of paperwork, and sticking to any applicable payment terms. After all, the cash flow of any business is only as good as the in-house accounting, reporting and paperwork, so it’s crucial to stay on top of this and keep it appropriately maintained. 

Now more than ever, it’s also important for businesses to have access to a rainy day fund, or a cash reserve designed to be a buffer for managing unexpected events. While its presence often gives business owners the confidence and finances you need to grow their business, it can also protect brands from coming unstuck from a lack of cash flow. If you’re a business owner looking to implement or improve a cash flow management system, now is the time to partner with a strategic advisor to take control of your financial future - and this is where the team at Muro can help with a business health check. 

Take Control Of Your Financial Future With Muro

Whether you’re starting a business, purchasing an existing one, or even reevaluating where your current enterprise stands - all require some form of financial know-how if you hope to successfully navigate your legal tax requirements as well as hitting your financial and business goals. 

However, if understanding the legalities that surround your business or finances isn’t your strong point, then it may be reassuring to know that you’re not alone. In fact, many businesses (big and small) enlist the services of an accountant in order to free up their time while knowing that their financial obligations are already taken care of by the professionals. 

Ultimately, the team at Muro believe that every business owner is an entrepreneur. However, accounting does not discriminate - finances break down barriers and are not territorial. If you would like to take a deeper look into your finances, please get in touch with us at Muro today to ensure that you’re on the right path for success.