May 20, 2023

Ana Marinkovic: Make your cash flow

Cash flow management is a perennial issue for small businesses. But right now the stakes are even higher. NAB Executive Small Business Ana Marinkovic shares her key insights into ways to manage your cash flow.

If you’re feeling the pinch right now due to rising costs and higher interest rates, it may be time to take a closer look at your cash flow.

Good cash flow management, including pulling the relevant levers when necessary, can be a vital pillar in ensuring your business’s success, even when times are tough.

Conversely, you can have all the brilliant products or services a customer could want and still end up struggling, simply because you don’t know how to optimise your cash flow – how to price in an inflationary environment, how to recoup your costs, what the latest governments grants are.

Moving on from the recent past

Take a customer I met up with recently. Despite having a turnover of $9 million, they weren’t profitable.

When I dug deeper, I found out this was because they hadn’t changed their pricing since before the pandemic.

Their reason? They didn’t want to disappoint their customers.

They’re not alone. Over the past few weeks, I’ve met with several customers who are operating just as they did before, during and immediately after the pandemic.

The problem is, times have changed. Back then there was a lot of cash in the system and a lot of discretionary spending. Now most businesses have ample stock but significantly less money – the result of customers pulling back from buying or directing their money elsewhere. By not factoring in inflation and a slowing economy, they risk undermining their entire business.

Smoothing the way

Fortunately, many small businesses aren’t sitting still.

Just last month I visited a Queensland farm that’s done a great job of auctioning off all its unnecessary assets – surplus farming equipment that was simply sitting in storage. As a result, it’s automatically increased its available money while also reducing outgoings such as insurance premiums and storage bills.

A dentist in NSW, meanwhile, told me how he recently moved to leasing all his equipment to smooth out his cash flow.

I’ve met with customers who are shifting from 90-day invoicing terms to 60 or 30 days. They haven’t targeted every customer; just those who can absorb it – the large corporates and government agencies that have made a point of saying they’re here to support small business.

Boosting the cash coming in

These are just some of the ways to smooth out your income and expenses. You also need to encourage customers to spend in the first place.

Happily, I’ve visited many businesses who are embracing this challenge by thinking outside the box. Several retail clients are doing a brilliant job of bundling items for sale to provide greater value for their customers.

One florist I met has made a point of offering additional treats, like chocolates and wine, with every bunch of flowers. At the same time, she’s ensuring an abundance of foliage makes for cost-savvy offerings.

And many beauty salons are offering discount vouchers to reward loyal customers. Most that I talk to tell me only a quarter go unused, a sure sign they’re working.

Protecting family from business pain

That said, there are some small businesses that will struggle in the current environment despite their best efforts. All the more reason to keep personal and business finances separate.

While it can be tempting to use your home loan’s redraw facility to get through a difficult time, it shouldn’t be your regular go-to. Nor should your investment portfolio or the funding you have accumulated for your children’s education.

If you are tempted to take this route, it’s time to consider the level of risk you’re taking on board. You don’t want to expose yourself or your family to unnecessary or unsustainable risk.

It’s also time to talk to your accountant, financial planner or banker. They may be able to offer up other ways to make ends meet in the interim.

Setting yourself up for the long term

Cash flow management can also be about the long-term opportunities you may have to forego. The fact is, if you’re constantly focused on the day-to-day functioning of your business, it’s very difficult to step back and plan for the future.

The latest software package could help, as could bringing a specialist on board if your margins allow. Whatever you do, the trick is to educate yourself first – to find out what you don’t know.

Ultimately, you want to do the basics incredibly well. You want to make sure that anything that impacts your cash flow – that goes in or out of your business – is absolutely necessary and extracts as much value as possible, helping you to stay relevant to increasingly discerning customers.