Small business finance: 5 tips for managing cash flow effectively 

We get that running a business is a constant juggle, and managing cash flow can be tricky. For many Aussie small and medium business owners, the ideal scenario – paying suppliers as late as possible while receiving immediate payment from customers – simply isn’t realistic. Unlike larger companies with a steady stream of income, smaller businesses may find themselves in a constant balancing act.   

 Here at Tyro, we understand the unique challenges Aussie businesses face. And with a stream of steady cash flow top of mind for many, we’ve put together these 5 handy tips to help ensure your money keeps flowing, while your business keeps growing. 

Understanding your cash flow: The key to control 

Before diving into specific strategies, let’s take a quick detour to Cash Flow 101. Cash flow simply refers to the money coming into your business (income) minus the money going out (expenses). The goal? To ensure there’s enough coming in to cover your expenses and leave some extra for growth or something unexpected. This should not be confused with profit, which for small businesses starting out can sometimes take years to achieve.  

 So, what is the key difference between cash flow and profit? Profit is the money left over after you’ve paid all your expenses. While cash flow, is the actual movement of money in and out of your business at any given time. It’s possible to be profitable on paper but still have cash flow challenges, especially for young businesses. Getting a handle on your cash flow will helps you avoid these situations and ensures you have enough money available to keep your business running smoothly. 

Now, with the basics covered let’s look at some actionable tips: 

1. Stay on top of invoicing

Send invoices promptly and follow up on late payments diligently. For existing customers, Tyro’s electronic invoicing is a powerful eCommerce tool that lets you generate, send, and track all your invoices in the one online location. This can help you to get paid on time and boost that cash flow. 

2. Find the inventory sweet spot

Holding too much stock can be a major cash flow drain. It ties up your money in products that may not sell quickly, leaving you with less cash for important things like marketing or growth initiatives. Get into the habit of regularly reviewing your inventory levels. This helps you identify slow-moving or overstocked items before they become a problem. Use your sales data and trends to forecast future demand (and future cash flow), saving you money in the long run. This ensures you order the right amount of stock to meet customer needs without ending up with excess inventory. Inventory management software or a simple forecasting system can be a valuable tool to manage this.   

 3. Don’t be afraid to renegotiate

Embrace your inner negotiator and revisit contracts with suppliers or service providers. Remember, loyalty is great, but so are competitive rates. Get a few quotes and leverage them to secure a better deal. Exploring extended payment terms can also free up cash flow in the short term, allowing you to invest in other areas. Regularly review your expenses to identify areas for savings, like unused subscriptions. 

4. Use the power of real-time data

Good decision-making relies s on having access to accurate and up-to-date information. Real-time data empowers you to make informed decisions about your cash flow, such as identifying potential shortfalls or optimising your spending. Tools like the Tyro App allow you to see your daily-takings and business performance across multiple locations, all in real-time. This gives you a clear picture of your current financial standing and helps you make informed decisions on the fly. 

5. Build a Cash Flow Buffer 

Life (and business) is full of surprises. Having a healthy cash reserve acts as a safety net, protecting your business from unexpected expenses or seasonal slowdowns. Consider setting aside a portion of your profits regularly into an interest earning business bank account before planning growth initiatives so that you have a backup when and if you need it. A general rule of thumb is to have about three months’ worth of operating expenses.  

Cash Flow Management Made Easy 

At Tyro, we offer a suite of tools designed to simplify cash flow management for Aussie businesses. From real-time transaction tracking to same day settlement options, we can help you take control of your finances and focus on what you do best – growing your business! 

FAQs on Small Business Cash Flow Management 

1. What steps can I take to maintain a positive cash flow?

To maintain a positive cash flow, try and focus on reducing payment cycles for receivables, optimising inventory management to avoid overstocking, negotiating better terms with suppliers, and regularly reviewing expenses to cut unnecessary costs.

2. Why is a cash flow forecast important for small businesses?

A cash flow forecast helps small businesses predict how much cash will flow into and out of the business in the future. It allows you to anticipate periods of positive or negative cash flow, enabling better financial planning and decision-making to navigate through financial challenges effectively. 

3. How can I monitor my small business’s cash position effectively?

You can use tools like real-time transaction tracking and business performance analytics offered by platforms such as the Tyro App. These tools offer detailed insights into your current cash position, empowering you to monitor cash flow trends, and make informed decisions to manage your finances efficiently.   

4. What are the benefits of using real-time data for cash flow management?

Real-time data helps small business owners to make timely decisions based on accurate financial insights. It helps identify cash flow trends, potential shortfalls, and opportunities for cost optimisation, enhancing overall financial control and business agility. 

Disclaimer: Tyro provides this article for general information and educational purposes and does not take into account the financial situation or needs of any reader. The information provided must not be relied upon as financial product advice.  

Tyro may from time to time provide links to other websites for information purposes. The inclusion of links does not imply endorsement or support by Tyro of any of the linked information, services, products, or providers. Tyro does not accept any responsibility for any errors, omissions or reliability of such content and any use thereof is solely at the user’s risk. Please undertake your own assessment before relying on it.