For businesses, the lifeblood that keeps operations moving is cash. Maintaining a positive cash flow ensures a company can meet its financial obligations, seize new opportunities, and grow.

Over the past 18 months, the Australian economy has been experiencing unprecedented levels of inflation following a period of rapid growth and surplus government supports. It can be challenging for small businesses in this environment of uncertainty to sustain a consistent level of cash flow, so here are some key strategies to help your business maintain positive cash flow in an inflating economy.

1. Frequent & Methodical Cashflow Forecasts

Foremost among the strategies is consistent cash flow forecasting. Small businesses that have showcased sustained growth make it a point to regularly review and forecast their cash flows. This includes weekly, monthly, and quarterly assessments. By anticipating incoming revenue and predicting outgoing expenses, businesses can prepare for potential shortfalls, ensuring you remain solvent during leaner periods. Regular forecasting also highlights patterns, helping you anticipate periods of high or low cash flow based on historical data.

2. Adjustment & Monitoring of Payment Terms

Another crucial strategy employed by successful Australian businesses is the optimisation of payment terms. This could involve negotiating terms with your suppliers to extend invoice payment timeframes, or offering early payment discounts to clients to encourage swift settlements. Companies find that aligning incoming and outgoing payment cycles reduces the risk of unplanned cash deficits, allowing for prompt payment of obligations. The proactive management of these terms can strengthen relationships with your clients and suppliers as businesses work together to manage success.

3. Leveraging New Technologies

With the rapid advancement of technology, Australian companies are increasingly employing digital tools to streamline their financial operations. Platforms that automate invoicing, expense tracking, and payment processing not only save time but also reduce errors. Furthermore, with real-time data and analytics at your fingertips, your business can make more informed decisions, optimising cash flow management efficiently and accurately.

4. Reviewing Overheads & Requirements

While focusing on revenue is crucial, successful businesses underscore the importance of regularly analysing expenses. This involves routine audits of operational costs, renegotiating contracts with vendors, and assessing the return on investment for various business expenditures. By keeping expenses in check, companies can increase their net free cash, ensuring more liquidity to navigate unforeseen financial challenges.

5. Maintaining A Cash Reserve

The unpredictable nature of business operations, as recent global events have highlighted, necessitates a buffer for stability. Many successful businesses allocate a portion of their profits to a cash reserve or contingency fund. This provides a financial cushion during downturns or when confronting unexpected expenses, ensuring your business can weather short-term cash flow challenges without jeopardising long-term growth. We recommend regular, systemised transfers to a cash reserve, at a level which allows compliance obligations and unforeseen capital expenses to be paid without impacting the business main trading account.

In conclusion, effective cashflow management is multifaceted and demands both proactive strategies and reactive solutions. By learning from successful businesses that have mastered this balance, you can bolster your business’s financial health, ensuring sustainability and growth in an ever-evolving economic landscape.

How We Can Help

Lambourne Partners Consulting have services designed to assist businesses with cash flow management and to provide company directors with a level of certainty. Ranging from complete construction of custom cash flow forecasting, modelling and management strategies, to the provision of standardised modelling tools for financially involved owners to regularly create their own plans.

To find out more, get in touch with us below or call us on (02) 4969 6600.