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Edition 5 – Cash Squeeze

Written by Dean Robinson.

For most businesses, this week is just about the lowest point in their cash cycle all year.

Essentially, December and January are a complete write off! Short trading months. Staff on annual leave. Business shutdown over the Christmas break.

If you are in the construction industry, it’s even worse! Nothing much happens between Melbourne Cup Day on the first Tuesday in November and Australia Day in the last week of January. Plans might go into council, but don’t come out. Wet weather might impact in the shorter trading months, meaning if the job is not complete, progress payments can’t be claimed.

And then, as most businesses attempt to bounce back in the New Year, the last week of February beckons. The week when most Family Businesses in Australia need to pay their Quarterly Business Activity Statement (BAS).

The cash squeeze is on! Big time.

Here’s some of the ways to better alleviate the cash squeeze, and reduce your stress levels at this time of year — not just in 2016, but every year.

  1. Cashflow Forecast
    Most Family Businesses don’t plan their cashflow. A simple spreadsheet that monitors weekly cashflow will go a long way to helping you work out how much cash you need and when you need it. Most importantly, it will help you to model how much cash you need in the bank in the first week of December that will get you through to the last week in February.
  2. Chase for Payment
    Don’t wait! Get on the phone. If you’ve sold the product or provided the service, it is obscene if people still owe you money from before December by the end of February. Chase!
  3. Alternate Means of Payment
    There are still Family Businesses today that don’t accept certain credit cards. If there is a choice between not receiving payment, or wearing the cost of the merchant fee for accepting American Express, I’m taking the 2.75% hit any day of the week.
  4. Is your Bank Funding model right?
    Most Family Businesses rely on an overdraft. However, is it necessarily the right model for your business? In 21st century Australia, there are alternate funding models available for Family Businesses that mean, for example, that you are paid when the invoice is raised — not when the client decides they’re releasing payment.
  5. Stash the Cash
    Most Family Businesses know what their Quarterly BAS obligation is likely to be. For some, it is the same each quarter. For others, it is seasonal. Whichever it is for your Family Business, you should be setting aside money each and every week into a separate GST Savings account. This not only forces a savings discipline in the business, it also means your everyday business bank account operates on a true balance — not an inflated figure that will have its heart ripped out every 90 days.

What I like about these ideas is that none of them involve any degree in rocket science. They are easy to implement, can make a significant difference to your cashflow and can significantly improve your own stress levels at this time of year.

This Week’s Tip

The time to start planning for a better way to manage your cashflow is right now. Remember the feeling of worry and stress in February! Then commit to changing your practices so you can reduce your anxiety, improve your cashflow and give yourself greater peace of mind.