Media

1 April, 2008

Businesses that do not manage their cash flow well before the end of the financial year, run the risk of being distracted from their business as they make a last ditch effort to collect debtors or clear stock by June 30.

Alastair Welsh, Westpac's General Manager Business Banking, said that even small fluctuations reducing cash flow could have a significant and often detrimental impact on a business.

"If cash is not flowing well, a business will have a higher reliance on loans, concern about debtors and anxiety about their ability to trade," he said.

Mr Welsh said that while it was unlikely that cash inflow and outflow for a small business would be constant all year round, it was essential for businesses to regularly assess the movement of cash flow throughout the year.

"Successful business owners do not silo cash flow or other parts of their business, they see all the components of running a business as intertwined. In short, they plan and regularly take stock, particularly of cash flow," he said.

To manage the cash flow cycle effectively, Welsh said that at least two months out from the end of the financial year businesses should "get the house in order" in three key areas related to cash flow – debtor processes, stock management, and taxation benefits.

Debtor processes:

• Make preparing invoices one of your highest priorities
• Provide customers with information about payment processes, and identify how they will pay – cash, cheques, or direct deposit
• Identify slow payers and deal with them accordingly
• Reduce the grace period for late payment, and increase the frequency of reminders to late payers
• Repayment issues - suggest an initial deposit with an ongoing repayment schedule
• Consider receiving payment up front before providing stock or services
• Pay suppliers on a chronological basis-rather than paying all on the same day.

Stock management:

• Conduct a stock-take to understand your stock levels
• A lack of stock – identify if the stock was a limited run, and whether the supplier or manufacturer processes can be improved
• Too much stock – of appropriate order stock only when it is needed, hold a sale or two for one offer, or consider giving stock to charity which will be a taxable donation.

Taxation benefits:

• Check with your financial adviser about the financial benefits to your business of pre-paying interest on loans, leases and insurance before the end of June.

Welsh also said that in March 2008 Westpac launched Business IQ, an innovative tool that makes it possible for business customers to tap into Westpac's knowledge base, sourcing practical business information, advice and tools – online, face to face or over the phone.

"Businesses can take stock using the cash flow forecasting tool on Business IQ to track incomings and outgoings," Mr Welsh said.