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  • Writer's pictureMatthew Dudek

Where is All Your Cash?

Is your business operating at a profit but you find it hard to pay your liabilities on time? Have you ever had your bank card declined by an eftpos machine when you thought you had enough money in your account? Are your sales figures healthy but your bank account is looking a bit worse for wear? If you are running a successful business, why are you continually short on funds? Where is all your cash? The Importance of Cash Cash flow refers to the money incoming and outgoing of a business. Effective Cash Flow Management is integral to the survival of a business. In Australia, “90% of small business failures” are related to poor cash flow (, 10th November, 2015). However, more often than not, these businesses were actually quite profitable on paper. So where did they go wrong? The impact of poor cash flow can mean that a business is unable to pay their liabilities when they fall due. They may be unable to pay their suppliers which can result in a poor credit rating and can ultimately end in being placed on stop credit. It is difficult to recover your reputation with your suppliers once this occurs. This will ultimately impact on a business’ ability to meet the demands of their customers. Cash is essential for a business to pay their employee wages, PAYG and super requirements. Not only will late payments result in an unhappy workforce, but additional fees and charges are required for missed SG payments, costing a business more money in the long run. It is also important for a business to be able to meet their ATO obligations when they fall due. Payment plans with the ATO are not a guarantee and they will review your financial history and the value of your current debt before agreeing to one. The Cash Flow Statement The Cash Flow Statement is an integral tool for managing your finances. It should always be reviewed alongside your balance sheet and profit & loss statements to analyse the health of your business and to evaluate the viability of economic decisions. The Cash Flow Statement “tracks all the money flowing in and out of your business and can reveal payment cycles or seasonal trends,” ( Understanding these cash cycles is key to creating effective and achievable budgets. Budgets & Forecasts A Budget is an effective tool that can help a business plan for the future. It is a “quantitative expression of a plan for a defined period of time,” ( A typical budget includes forecasted sales and revenue figures alongside expected expenses and cash outflows. A budget can highlight if a business will have enough cash to meet its expected operating expenses in the short to medium term. If not, it gives the business owner the opportunity to access other sources of cash (eg, a bank loan) to assist through a period of shortage. However, it is important to note that although bank loans and overdrafts can help a business get on its feet, it is not an effective financial policy to adopt continually. Money tied up in Assets If your Balance Sheet it healthy (ie, shows a positive Net Assets figure) but you have cash flow issues, you could have money tied up unnecessarily in other assets such as:

  • Inventory or stock on hand

  • Aged debtors or accounts receivable.

Inventory It is essential for a merchandising or retail business to have an inventory supply. However, if your stock is not moving as fast as anticipated, or if the amount exceeds your expected sales, you could be tying up funds into your inventory unnecessarily. These funds may be better off as cash in your account rather than surplus inventory on a shelf. Depending on the nature of your business, some stock can deteriorate or expire. Therefore, if it doesn’t get sold in a timely manner it can potentially end up as money down the drain. Aged Debtors Although having an accounts receivable balance is a common feature of a successful business, it is only really beneficial if this money is collected. If a large percentage of a company’s assets are tied up in accounts receivable, it is effectively money that cannot be used. There is also the risk of non-payment by customers. A regular review of what your aged debtors include can help to keep on top of customer debts that are going over your payment terms. Separate Business From Pleasure Keeping your personal transactions and expenses separate to your business is important in remaining on top of your business’ finances. It can be difficult to plan and budget for your business when you frequently withdraw funds or make personal purchases using your business account. The way to avoid this is to ensure that you have a separate bank account for your business. This reduces the number of transactions processed through your business’ bank account and also makes it easier for your bookkeeper when reconciling. Depending on your bank, you may also find the added benefit of lower bank charges due to reduced funds transfers. Keeping Track of receipts – Receipt Bank As a business owner, it is your responsibility to keep records of your transactions. Keeping copies of all receipts can also ensure that you are claiming everything that you are entitled to in your GST and tax returns. However, this can be tedious. Receipt Bank is a program that allows you to simply take a picture of your receipt or invoice and save it to your cloud account. The ATO have advised that they recognise images of your receipts and invoices as legitimate copies of the transaction and the original hardcopy is not required. Receipt Bank works alongside Xero so that information that is scanned into your account can be processed and reconciled in your Xero software. This greatly reduces the need for data entry by your bookkeeper, which can save you time and money. The BAS Agency Small Business Financial Health Check The BAS Agency offers a financial evaluation of the health of your business. It can highlight areas of concern and assist you with future strategic decisions. As a part of this service, your business cash flow is reviewed. If you would like more information regarding the Small Business Financial Health Check or assistance with converting to Xero and Receipt Bank, please don’t hesitate to get in contact with our team at, 10th November, 2015, 4th October, 2012

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