Skip to main content Skip to main navigation
Skip to access and inclusion page Skip to search input

Cash flow management for sole traders

4-minute read

As the owner, financial controller and senior employee of your business, you have plenty to think about. Keeping your enterprise solvent is one of the most important considerations – and that’s all about keeping on top of your cash flow.

Key take-outs
  • Cash flow is a measure of income versus expenditure
  • Good cash flow is a priority in business
  • There are many ways to improve cash flow

What is cash flow?

Cash flow is simply a measure of the money coming into your business versus the money going out of it.


If there’s more coming in than going out, you have positive cash flow – which is ideal. If you’re spending more than you make, you have negative cash flow – although this may be expected if you have start-up costs.

The money you make

Your business income might include elements such as:


  • Immediate payments for the goods and/or services you provide
  • Future payments following the issuing of invoices
  • Any grants or subsidies you receive
  • Other income such as investment interest and dividends


Accountants and bookkeepers call the money you are owed ‘accounts receivable’.

The money you spend

Your business expenditure might include elements such as:


  • Immediate costs associated with providing goods and/or services
  • Future costs based on invoices you have yet to pay
  • Salaries, wages, super and employee insurance
  • Tax and accountancy expenses
  • Rent, electricity, gas, phones and internet
  • Vehicle costs
  • Maintenance and repairs
  • Interest on debts and/or debt repayment


The money you owe for goods and services is called ‘accounts payable’.

Balancing your books

People talk about ‘balancing the books’ when the debit and credit sides of a business balance each other out, including any profits achieved or losses sustained. You could view and assess your cash flow in much the same way by calculating your ‘cash position’ on a regular basis.


At the end of each month, for example, your basic cash position is:


(Total cash in) – (Total cash out)


If this number is:


  • Positive – you may have the capacity to spend, save or invest in your business
  • Negative – you may have to find alternative cash sources to keep your business running, or identify ways to reduce expenditure
  • Around zero – your savings and investing options may be limited.


Having a business bank account1 that’s separate from your personal finances will help simplify this calculation each month. If you have periods of ‘positive cash flow’ you may also wish to consider linking your transaction account to a business savings account1 where you could earn interest on your surplus.

How could I improve my cash flow?

One way that may improve your cash flow is to speed up your ‘working capital cycle’ – the time it takes to turn existing assets into cash.


Let’s say you paid a wholesaler for a box of widgets, then sold them on to a customer a month later for a profit, then received payment for them a month after that. In this instance, the working capital cycle is two months.


Reducing that cycle to six weeks may improve your cash flow. Three ways that could help are:

1. Get paid faster

  • Invoice customers promptly
  • Send invoices to the right person
  • Chase up slow payers
  • Offer multiple ways to accept payment
  • Establish or renegotiate payment terms

2. Pay your bills when they are due

We’re not suggesting you upset your suppliers. But if you’re in the habit of paying your bills early, perhaps think about just paying them on time instead. And it could be worth reviewing your payment terms and renegotiating them if necessary.

3. Manage your stock or supplies smarter

  • Keep your records up to date
  • Adjust stock levels in response to seasonal trends
  • Order less, but more frequently
  • Think of ways to shift excess/dead stock


‘Cash flow is key’ as they say. Follow these tips to help improve yours, and don’t forget to seek independent professional advice when applicable.

Read more

Improving your working capital cycle

What is working capital, and how does it affect cash flow? Check out these tips on how you could get your assets working harder for your business.

How to create a cash budget

Your business will always need cash to grow. Here’s a guide to producing a cash budget that could help you keep track of your cash flow and plan for the unexpected.

Understanding your cash position

To better understand your business’s cash flow, it’s important to know where your finances stand. Calculating your cash position can help you do that. Here’s how.

Things you should know

1. Westpac’s products are subject to terms, conditions, fees and charges; and certain criteria may apply. Before making a decision, read the disclosure documents for your selected product or service, including the Product Disclosure Statement and T&Cs for Westpac business bank accountsbusiness savings accountsforeign currency accounts and online banking, by clicking the above links and consider if the product is right for you.


The information in this article is general in nature and does not take your objectives, financial situation or needs into account. Consider its appropriateness to these factors; and we recommend you seek independent professional advice about your specific circumstances before making any decisions.