Cash flow, put simply, is the flow of cash and cash equivalents transferred in and out of your business. Cash flow management is getting the timing of the inflows and outflows as close as possible and ensuring your business has enough inflowing cash to cover the outflowing cash.

Managing your cash flow over the next six months (December to May) becomes increasingly important as your business will encounter eleven public holidays (in NSW), Christmas and Easter closures, school holidays, employees on annual leave and multiple tax deadlines that will occur within quick succession of each other. These events may also impact your clients and their ability to pay you on time.

Thinking ahead to estimate and anticipate what may impact your cash inflows over the next six months will help you to prepare for how you can manage your cash outflows, such as wages, superannuation, taxes, PAYG Instalments, loan payments, credit card payments, and supplier payments. Inflationary pressures are an ongoing stress on cash flow that should also be considered.

Cash Flow Management Tools

Some vital tools that can assist in managing your cash flow are:

• Budget and forecast: Forecasting estimates of your future revenue and expenses, and the timing of the cash inflows and outflows. This is a vital tool that will tell you if you have enough cash to run the business and estimate when there will be more cash outflows than inflows.
• Break-even point calculation: Calculate what revenue is required to equal total costs. This tool can also assist you in identifying how much costs need to be reduced if your revenue cannot be increased.
• Stock control and turnover review: Cash is spent on high-turnover stock rather than stocking up on low-turning stock over a period of time when your cash flow may be under stress.
• Management reporting: Regular reporting to review actual performance to budget, review working capital ratio, debtor days and creditor days.
• Debtor management: Review debtor management processes and maintain regular contact with clients.

How We Can Help

At Lambourne Partners, we invest the time to ask the right questions and understand the pain points of a business to achieve the optimal outcome for our clients. We work with our clients to provide the best tools and advice to support you and your business through all seasons, as cash flow management is just as important when cash inflows are high, as when they are low.

If you’re interested in understanding more about how we deliver our cash flow management advice, please contact us below to find out how we can help you plan the next steps.