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How to Offset Cash Flow Problems

Getting a small business up and running is only half of the struggle towards success, with the other half being able to maintain consistent revenue. You may have cash coming into the business, but if you find yourself struggling to pay bills each month you may have a cash flow problem. To streamline your cash flow, here are a few expert business accounting tips to ensure your business is set for success.

Define Your Credit Terms
If you’re selling any type of goods or services, it’s likely your invoices will have a thirty-day credit term for your customers to pay. Often this is where cash flow problems start with late invoice payments affecting your monthly budget. Early payment terms, such as net 10 days, provide an incentive for customers to pay early for a discount. For this to be effective it’s important to determine the interest rate and credit terms to ensure you’re not losing money. A simple calculation for interest rate is to multiply the discount by the total payment days and then to subtract from the discount days allowed. Or if you’re having difficulty deciding on payment terms, consult with a small business accounting firm to settle on the best terms for your business.

Access a Line of Credit
Having favourable credit terms is the best way to encourage your customers to pay early, but sometimes you’ll need some extra money if your monthly budgeting doesn’t go to plan. Accessing a line of credit from your bank is a good backup if anything goes wrong and has more flexibility than a traditional loan. For short-term purchases like equipment and daily expenses, it's a great option that offers security but can be more expensive in the long term due to higher interest rates. If your business relies on accessing a monthly line of credit, it’s another sign of cash flow problems and that you need to revamp your invoicing and accounts receivable processes.

Cutting Costs
While cutting costs seems like obvious advice, it's a common mistake for small businesses that experience cash flow problems. Expenses are expected from running a small business but nonessential costs like packaging material and gardening can haemorrhage money and be the difference between success and failure. Keep a record of your monthly expenses, including utilities and rent, and then analyse which can be cut back or reduced to save money. This might mean cutting down on expensive rent by moving to a more affordable area if your business doesn’t depend on foot traffic for sales. For an in-depth look at your expenses, a cash flow analysis by a small business accountant can save you time and money in helping to understand your business needs.

M.A.S Partners has been Australia’s original accounting for almost 60 years, making up experts in small business accounting to help analyse your business needs. To find out more about our small business accounting services in Sydney, contact our team here or call us today on (02) 9211 5000.

 
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