How to track and improve your cash flow

Want to put your business in a stronger position? Improving your cash flow with real-time tracking is the first step.

Having a steady stream of funds into your business enables you to operate with confidence and pay bills on time. Conversely, unsteady or negative cash flow could derail your operations and impede growth. That’s why tracking your cash flow, ideally on a daily basis, can put your business in a stronger position.

 

 

Here are some tips to help you get started.

The importance of tracking your cash flow

Rigorous cash flow management comes into its own when money is tight. It did for wellness chain BodyMindLife when the COVID-19 pandemic struck. The business, which operates five yoga studios across Sydney, lost nearly 90% of its revenue after the government ordered gyms and fitness centres to close. Having a close handle on the finances gave CEO Phil Goodwin the confidence he needed to invest in an online platform to livestream classes to members.

 

“It was a big outlay for us at a time when cash flow was an absolute priority,” Goodwin says. “We were able to make it because we were set up to see, minute by minute, how our cash flow was tracking and where we sat financially. That discipline really paid off because it helped us to avoid the problems that can arise when circumstances change dramatically.”

Projecting your cash flow 

Better cash flow management starts with projecting when money is likely to come into your account – and when it’s due to go out. For example, on rent, bills, wages, stock and all the other expenses associated with running your business. Last year’s figures can be a good indicator but should be amended if circumstances change - for instance, if you’ve been impacted by the coronavirus pandemic.

Understanding your cash position

Monitoring your accounts allows you to see how you’re tracking and whether your projection requires adjusting. Doing so daily means you may be able to act faster if a sudden shortfall hits. Should sales drop, for example, or customers are taking longer than usual to pay their bills, you may decide to tighten your debtor management or look for ways to reduce costs. 

 

Without this up-to-date understanding of your cash position, particularly during uncertain times, you may not be able to see when you should take action to help you stay afloat.

Tools to help track your cash flow 

The right tools can make almost every job easier. Using cloud accounting software such as Xero, or QuickBooks can give you real-time visibility of your position and allow you to forecast and manage your cash flow more effectively.

 

You can also stay up to date by using online banking to connect your transaction accounts to your accounting software. Doing so will save time and make it easier to reconcile transactions and take control of your finances.

Financing options to boost your cash flow

Business financing could help improve cash flow. Invoice finance, for example, allows you to access up to 85% of approved unpaid invoices within 24 hours, while business overdrafts can provide funds to help you meet commitments while waiting to be paid.