Cash flow is the money moving in and out of your business, and it is the single most common reason small businesses get into trouble. A business can be profitable on paper and still fail if the cash is not there when a bill, wage run or tax payment falls due. The good news is that a few simple habits, and having someone keep an eye on the numbers, prevent most cash-flow problems. Here is how.
Why cash flow matters more than profit
Profit is what is left after all your costs on paper. Cash flow is whether you actually have money in the bank when you need it. The two are not the same, a growing business can run out of cash while still being profitable, because money is tied up in stock, unpaid invoices or tax owing. Managing cash flow is about timing: making sure money comes in before it needs to go out.
Simple habits that keep you ahead
A handful of practices make the biggest difference:
- Invoice promptly and chase overdue payments, since your cash is stuck until customers pay.
- Keep a rolling forecast of money in and out for the next few months, so a squeeze is something you see coming, not a surprise.
- Set money aside for GST, PAYG and tax as it is earned, so those bills never blindside you.
- Watch your margins and know which work actually makes you money.
Where a virtual CFO comes in
Most small businesses cannot justify a full-time chief financial officer, but they still need forward-looking financial oversight. A virtual CFO gives you that on a part-time basis: cash flow forecasting, budgets, clear reporting and someone to spot problems early, at a fraction of the cost of a full-time hire. It is the difference between running on instinct and running on numbers.
How MS Financial Services can help
Our Virtual CFO & Financial Management service gives your business forward-looking cash-flow oversight, scaled to your size, backed by Chartered Accountants and our Business Advisory team. To get ahead of your cash flow, get in touch.
Frequently Asked Questions
What is cash flow management?
Managing the timing of money in and out of your business, so you always have cash available when bills, wages and tax fall due, rather than just being profitable on paper.
Why do profitable businesses run out of cash?
Because profit and cash are different. Money can be tied up in stock, unpaid invoices or tax owing, so a growing, profitable business can still be short of cash when a payment is due.
How can I improve my cash flow?
Invoice promptly and chase debtors, keep a rolling forecast, set money aside for tax and GST as you earn, and watch your margins so you know what actually makes money.
What is a virtual CFO?
CFO-level financial oversight provided part-time, covering cash flow forecasting, budgeting and reporting, at a fraction of the cost of a full-time chief financial officer.
Does my small business need a virtual CFO?
If you are unsure of your cash position until a bill arrives, scramble at tax time, or plan to grow, a virtual CFO gives you the forward view to make better decisions.