Cashflow Resilience In 7 Easy Steps
Do you lay awake at night worrying about how you will pay the next tax bill or your staff wages?
Here are 7 easy steps to build cashflow resilience in your business and put your mind at ease.
- Develop a realistic cashflow forecast so that you can adequately plan for your incoming and outgoing cash. Consider software like Float (https://floatapp.com) which integrates with Xero to provide real-time cashflow information.
- Set payment terms and enforce them. Teach your customers from the outset that late payment is not acceptable.
- Invoice in a timely manner to ensure you get paid as quickly as possible. For ongoing jobs you should issue regular progress invoices to spread out the cashflow. This improves cash conversion and reduces bad debt risk.
- Use online payment services such as Paypal and Stripe to collect payments from customers. Based on research conducted by Xero New Zealand, PayPal and Stripe invoices get paid 10 days faster, on average, than standard invoicing.
- Set up a separate bank account for tax and put aside a set percentage of your income for future tax obligations. You could also consider the ratio method for managing provisional tax if it is suitable for your business. Tax pooling is an additional option.
- Carefully plan stock requirements to ensure you don’t have cash tied up in excess stock.
- Build a rainy-day fund. The amount of this rainy-day fund should be based on a risk assessment of the business. A general rule of thumb is that such a fund should provide enough cash to cover between 1 month and 3 months of expenses.