Small businesses must recognise the importance of cashflow

Posted on 22 March, 2017

Australian businesses have lost sight of the importance of cashflow, which can determine whether a business thrives or fails. Businesses must take steps to get tighter control of and visibility into cashflow.

Every single decision affects a business’s cashflow, whether it’s a capital investment or simply ordering new stationery. Buying items on credit can help preserve cashflow, while selling items on credit reduces cashflow. It’s essential for business owners to make smart decisions about when to use cash versus credit.

In the first year of operation, the availability of terms from suppliers for most purchases can produce a good uplift in cash surplus. However, in the second year, that uplift is much smaller since it’s only measured on the change from one year to the next.

Businesses can also inject cash into the business through a one-off sale of an asset or a one-off investment from the owner. The emphasis here is on the “one-off” nature of these injections.

RSM’s 2016 thinkBIG study revealed that 77 per cent of business owners were planning to fund their business growth through cashflow, indicating that management of the underlying business cash is a key factor to business sustainability and expansion.

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