Improving cash flow starts with knowing when money will arrive, what needs paying and where a gap may appear. A busy month can still leave your business short of cash if wages and supplier bills fall due before customers pay.

A clear forecast, prompt invoicing and regular attention to spending can help you make decisions before that pressure builds.

Understand why profit and cash are different

Profit measures income less expenses for a period. Cash flow tracks money moving through your bank accounts.

You can make a profit while waiting for customers to pay. Buying equipment, repaying loan principal or taking drawings can also reduce your bank balance without reducing profit by the same amount. That is why your profit and loss report and your bank balance answer different questions.

For example, imagine you complete and invoice a profitable project this month, but payment arrives next month. Your team and suppliers may still need paying before that money reaches your account.

Build a weekly view of the next three months

A rolling 13-week cash flow forecast is a practical starting point. It should show what you expect to receive and pay each week, based on realistic payment dates.

Start with your opening bank balance, then add expected receipts and subtract payments to calculate the closing balance. That closing figure becomes the following week’s starting point.

Include:

• Customer payments, using likely receipt dates, and any confirmed financing or owner contributions.

• Wages, supplier bills and everyday running costs.

• GST, income tax and other obligations that apply.

• Loan repayments, including principal and interest.

• Equipment purchases and planned owner drawings.

For a forecast based on bank movements, use the amounts actually expected to enter and leave the accounts, including GST where applicable, and include GST settlements separately.

For example, a week starting with $12,000, receiving $8,000 and paying $23,000 has a $3,000 cash gap. You can then look at collecting an overdue invoice, rescheduling a discretionary purchase or arranging other support before payments fall due.

Update the forecast each week and add another week at the end.

Make getting paid part of your routine

The time between finishing work and issuing the invoice is time you are helping to fund the customer’s purchase.

1. Invoice straight away. Send the invoice the day the job is done, not at the end of the month. Every day you wait is a day added to when you get paid.

2. Shorten your payment terms. If you're on the 20th of the following month, consider 7 or 14 days. Make terms clear in your quotes and contracts.

3. Take deposits and progress payments. For larger jobs, ask for a deposit up front and invoice in stages. This is standard in the building trades and works well for creative projects too.

4. Make paying easy. Add a "pay now" option to your invoices so customers can pay by card or bank transfer in a click.

5. Chase overdue invoices early. Set up automatic reminders in Xero, and pick up the phone once an invoice is a week overdue. Check your aged receivables report every week.

6. Know who pays late. If the same customers are always slow, change their terms or ask for payment up front.

Manage Money Going Out

• Use your supplier terms. If a supplier gives you until the 20th of next month, pay on time, but not weeks early.

• Review your regular costs. Subscriptions, phone plans, insurance and software creep up over time. Go through them once a year and cut what you don't use.

• Watch your stock and materials. Cash sitting on shelves or in the back of the van isn't available to pay wages. Order what you need for upcoming jobs, not "just in case".

• Think before big purchases. Before buying a vehicle or equipment outright, consider whether leasing, finance or hire makes more sense for your cash position.

• Pay yourself a regular amount. Taking drawings as and when makes cash hard to predict. A set weekly or fortnightly amount brings stability to you and the business.

Review where cash is getting tied up
Look beyond the total on your expense report. Ask which purchases are necessary now, which are helping the business earn money, and which can be reduced or rescheduled by agreement.

Unused subscriptions, excessive stock and materials purchased too far ahead can all absorb cash. Compare supplier options and discuss suitable payment terms before committing. Avoid relying on overdue payments to suppliers as a cash flow strategy.

Check pricing as well. If materials, wages or delivery time have increased, your current prices may leave less money available after each sale.

Growth deserves the same scrutiny. More work may require wages and materials before customers pay. Put those costs into the forecast before taking on a larger commitment.

Plan for tax and build some breathing room

Treat tax as a planned commitment. Discuss a suitable set-aside amount with your accountant or advisor. The right amount depends on your business, so a generic percentage is no substitute for an informed estimate.

A separate tax account can help you track the money reserved for tax. If your forecast combines several business accounts, avoid counting transfers between them as new income or spending. Keep tax reserves distinct from cash available for everyday use.

Over time, work towards a cash buffer that reflects your regular outgoings and the reliability of customer payments.

Turn the numbers into a weekly habit

Set aside a short weekly review to check your forecast, overdue invoices, upcoming commitments and any change in expected sales.

Choose one or two actions from that review, give them an owner and follow through.

At Beyond Your Numbers, we help business owners understand their numbers and use them to make better decisions. Contact us to discuss where cash is getting tight and how a clearer cash flow plan could help you prepare for upcoming commitments.