Cashflow Management – Practical Ways to Avoid a Crisis!

  • 08 November, 2019
  • Greg Pierlot

The challenge of cashflow management is nothing new to most business owners! It is a reality they face every day!

That said, a combination of:

  • Low economic growth
  • Tighter payment terms
  • Customers paying slower
  • Finance being more difficult to obtain and taking longer to access

have all combined to make life even more challenging for the engine room of Australia’s economy – the small business community!

However, despite this there are practical steps business owners can take to insulate themselves from the worst effects of what is a tougher trading environment including:

Cashflow Management - Accept the Reality and Adapt!

When the rules of the game change, the best path forward is to understand the new reality and adapt!

This is particularly important when it comes to cashflow management.

It is not about being pessimistic, for even in tight trading conditions, businesses can prosper and grow!

Rather, it is about understanding how the “game” is being played and adjusting.

For example, if you require finance, understanding the Lender landscape, who has an appetite for what, and the critical elements that need to be addressed, can greatly enhance the chances of getting the finance you need.

Know Where You Stand - Hope is a Poor Strategy!

Effective cashflow management is knowing where you stand with the Bank and in the market!

  • What you can borrow?
  • On what terms?
  • Will finance be readily available when you need it?
  • What is the Banks appetite to lend to your business and sector?
  • How strong is your negotiating position?
  • What leverage do you have?
  • What can you do to improve your negotiating power and leverage?

You need to know this BEFORE you apply for finance!

When you know reality, you can deal with it!

When you don’t, you are hoping, and hope is a poor business strategy!

Real Time Information - The Key to Cashflow Management!

Without real time financial information, it is hard to make informed business decisions.

Historical financial information is evidence of past achievements and can be an indication of trends.

But trying to make critical business decisions based on data that is 6 or 12 months old can be a recipe for disaster!

Fortunately, today business owners can use accounting software, (Xero, QuickBooks etc in combination with Hubdoc, Receipt Bank etc) to access the information they need in real time and very cost effectively!

Whilst the past is important, cashflow management is about today and the future! (Tomorrow’s cashflow repays todays debt!)

Real time data is a great starting point!

Talk the Lenders Language!

Financial data is the “language” through which Lenders understand a business!

If they have to rely on dated, or poor-quality information, finance is invariably hard, or expensive, to obtain.

A key to effective cashflow management and getting the finance you need is speaking the same “language” as Lenders!

Give them the information they need, in the format they require, to properly understand your business.

Looking Forward - Not Back!

A benefit of real time information is that it allows you to create projections (that have a solid foundation) to understand the likely cash needs of the business going forward.

Many businesses wait until a crisis occurs, (or there is an immediate cashflow need), to prepare financial projections. This is a mistake & poor cashflow management!

The best time to seek finance is well before you need it!

That said, projections are not just for the Banks – they are an essential and practical planning tool.

Whilst they will always be a “best guess” they allow business owners to plan and adjust strategies – to keep ahead of the game, instead of playing catch up!

The Right Debt Structure!

One common issue that can lead to cashflow problems is the wrong debt structure!

Particularly long-term assets being financed with short-term debt.

Often as a business evolves, debt is increased to meet an immediate need.

The type of funding is often secondary to the availability of the finance!

Undertaking a review and ensuring the debt structure is appropriate for the business is one way of avoiding or relieving cashflow issues.

Robust Policies and Systems!

As the world changes, it is important policies and systems within the business are adjusted accordingly:

  • Supplier payment terms
  • Stock Management
  • Debtor collections

Effective cashflow management is about ensuring policies are aligned to the current reality.

They also should be documented and “lived” by everyone in the business.

(Robust, documented policies and procedures are also a positive from a Lender perspective)

Have a Fallback Position - Always!

Access to finance is a major business risk that needs to be managed just like any other business risk.

Banks’ appetite and policies can, and do, change!

For this reason, effective & prudent cashflow management is about:

  • Knowing where you stand
  • Understanding the broader market appetite for your business
  • Having a fallback position if the Bank says no!


Although trading conditions are challenging, accepting reality and making the adjustments needed is the best way to avoid cashflow problems.

It can also ensure you are well positioned to take full advantage of opportunities when they arise, as they invariably will!

Knowing where you stand, your negotiating power and leverage before seeking finance is critical!

It can provide peace of mind, better outcomes and free up headspace to focus on what is important – running your business!

If you are thinking about finance, or would like to learn more, don’t hesitate to get in touch.