Taking Care of Money

By Pattie Pegler

We talk to lots of local business people and we’re frequently bowled over by their work ethic, knowledge and passion for what they do – whether that’s providing legal services or making great coffee. But regardless of the industry, many business owners struggle with cashflow.

Sure, money is something people often don’t like to talk about – but according to a report from Xero Insights in Sept 2022 more than 9 out of 10 business in Australia, New Zealand and the United Kingdom experience at least one month of negative cash flow each year. In short that means a month when your business is spending more than it’s making. You don’t need to be a maths whiz to know that’s not going to be sustainable.

So what do you need to look out for?

Well, according to Xero there are three key things to look out for that could see your business heading towards negative cashflow. An increase in late payments is one of them – and customers just paying a few days late can cause a problem.  If you have to pay your rent on a fixed date and your customers are just stretching out their payments to you.

Secondly, an increase in expenses can causes problems with cashflow. So maybe your rent has gone up or you have had to pay your annual license fee for some software. Sometimes these can be temporary blips – but it’s important to keep an eye on them as if they are part of an upward trend in your business expenses, it might be worth taking a closer look.

Lastly, for some businesses there maybe predictable seasonal slowdowns.  If you know there will be a downturn in revenue during certain periods – then plan accordingly.

So how can you avoid these pitfalls?

“It’s about keeping an eye on your business finances, being proactive,” says Canterbury-based accountant, Bronwyn Candish.

As a first step she recommends making it simple for people to pay. If you’ve ever had an invoice that doesn’t have the bank account number on it or doesn’t make it clear what the cost is for – you know how such basic issues can lead to late payment. So take a look at the invoices you generate and consider these questions. Is your bank account easily and clearly visible on the invoice? Is the invoice clear or will it generate follow up questions? Can customers pay online? Can they pay with a credit card?  You want to take away any of those initial, practical barriers to payment.

Secondly, be proactive – if you notice a client is paying later than usual, it might be sensible to have a chat with them. At the simplest level they might have mislaid the invoice. And sometimes a quick phone call can sort out problems quickly.

For small businesses an extra challenge can be chasing up late payment. Without a dedicated accounts person this can often fall to the business owner. “It can be uncomfortable having those conversations about payments when you have a working relationship with the client,” says Bronwyn.

It can be worth considering getting some help – there are businesses that specialise in credit control support.  

Ultimately, managing your finances means having a clear understanding of what’s going on. If there’s a problem, face it and look at what you can do. Make sure you know your business numbers and you understand what those numbers mean.