To improve cash flow during the COVID-19 pandemic, we have done some research uncovering helpful tips and tricks to help improve your small business income. While, we must stress, as Tax Agents, we are not in the business of providing financial advice, we do hope you find these tips helpful in the current times.
So, what is cash flow?
Cash flow is the amount of money going in and out of your business. This flow can be initiated by one of two things. Either, incoming money from direct customers making purchases, or by money going out through business expenses such as your inventory, staff, or bills. For a business to operate with a healthy cash flow, you need more money flowing in. On the other hand, having higher expenses and not enough income will put your business in what is referred to as a cash crunch.
Tip One – Dig down and formulate a plan
It is important to start off with a basic understanding of where your business stands at the current moment. By going through your financial statements, accounting dashboard, and retail reports you can keep an eye on your, cash, inventory, and debts. From here you can start to formulate a plan of what needs to change to increase cash flow.
Tip Two – Cut down non-essential spending
By looking at your numbers you can then identify your business needs verses wants and cut back on the non-essentials. Expenses such as utilities, marketing or retail management software are examples of what would be seen to be needs. While, items like your music or television subscriptions, travel costs, or luxury expenses would be considered wants. It is these wants that you should look to cut back on first.
Tip Three – Create smarter inventory practices
Try not to tie up your money in inventory. This means, the best thing that you can do to improve cash flow is to ensure that you are stocking the right products and selling them at a healthy profit. To do this as a business, you can spread out your purchases and improve the value of your inventory.
Once you have decided how best to increase the value of your business it is important to liquidate any excess stock. This can be done by putting stock on sale. Jennifer Martin of Zest Business Consulting says, “Excess inventory is the number one place where retailers lose steam (and money). Take time to see what you have in stock and start pulling it out of hiding.”
The most straightforward route to moving excess merchandise is to put them on sale. Bring out the slow-moving items from your stock room, mark them down, and put them on the sales floor. Yes, doing so will minimise profits in the short term, but it will at least help you free up space and cash. If you are looking to increase profit, bundle excess stock with other products. This means, if your slow-moving merchandise can complement your other products, why not bundle them together? It can add value to the sale and help you unload excess inventory.
Tip Four – Stay on top of administration
Proper administration practices can help to ensure a strong cash flow by keeping track of all shopper records, monitoring outstanding invoices and sending out reminders when necessary. As a business owner, you should, at a minimum, get weekly ageing reports for all accounts receivable. Sort your receivables into various categories according to length of delinquency and an objective estimate of likely collection. This allows you and your people to devote their time most effectively. Managing on account sales becomes immensely easier if you integrate your Point of Sales system with your accounting software.
Tip Five – Have a cash reserve
Always have a backup plan for when you run into cash crunch situations.
Business owners always need to be on the lookout for ways to free up funds. Hopefully, these five tips can gave a few ideas on how to improve your cash flow during the downturn caused by the COVID-19 pandemic.
For personalised tax advice at a local agent, contact us at Tax Arana today!