Are you running out of cash?

Working capital management tips that will help you build a business worth $3m+


Mike Boorn Plener, Business Connector with Dinesh Bhatia, CFO Advisory, Perth

Working capital management is critical in any business. The goal of working capital management is to ensure that the business is able to continue its operations and has sufficient cash flow to satisfy both operational expenses and short-term debt repayments. It’s a fine line in ensuring you are maximising return on your assets and at the same time minimising risks.


Hindrance to Growth

Statistics suggest more than 60% of small business owners do not perform cash flow analysis. This generally results in stunting the growth of their otherwise successful and profitable business!

This article takes a sharp look at both how you can make your cash work harder for you and how you can get your hands on more of it.


Cash flow forecast

  • Maintain an up-to-date cash-flow forecast. Think about all your major expending and know where your funding is coming from. Cash flow forecasts need to be done at least on a monthly basis.


  • Avoid financing long term assets with short term debt – it’s a recipe for disaster.
  • Get a line of credit from your bankers instead of Bank Overdraft to meet your short term cash needs. Bank Overdraft rates are generally more expensive.
  • Avoid credit card debt wherever possible unless you are paying 100% of the outstanding at the end of the credit period by direct debit—interest at 18% – 20% is a very expensive way of funding your business.

Cash in bank

  • This should be a no brainer, have a savings and/or fixed deposit account in addition to your transactional account—transfer excess funds into your savings or fixed deposit account and earn interest! It’s your money after all.


  • Review acquiring major assets  (machinery, trucks, computers…) on leases instead of outright purchase. You should base this on lease vs. buy analysis using net present value methodology.
  • Generally speaking, leases reduce your working capital requirement significantly and improve your ROI.


  • Always work with a signed–off quote / contract / agreement—this clarifies the expectations of the customer and likewise your obligations.
  • Invoice your customers promptly as soon as the job is done—use automation wherever possible.
  • Send your invoice to the right contact at the customer—many times everything is correct but the invoice never reaches its rightful place.
  • If the invoice is material, try seeing your customer in person and hand over the invoice – you will be surprised at the results!
  • For large value contracts try splitting the contract value into billing milestones or deliverables whenever possible.
  • Review your debtors ageing on a weekly basis, use systems such as Debtor Daddy to chase your debts.
  • Review the impact of discounts – 1% discount at the revenue line can mean 3% impact on your bottom line!
  • Review factoring options where possible—this gives you immediate short–term cash injection for a low funding cost, and is great when your business is growing rapidly.


  • Regularly review your inventory levels—avoid excess stock or stock–outs; both situations do not bode well for business.
  • Review your stock holding costs and opportunity cost of capital
  • Review stock for obsolescence at least on a quarterly basis; this avoids you holding on to dead stock.
  • Review your inventory turnover ratios on a monthly basis; this explains how long it takes for your stock to be sold.
  • Think outside the square to see if your business partners or suppliers can hold your stock risk, even if you need to pay a premium for it.


  • Where possible reach agreement with your important suppliers to have reasonable payment terms and stick to them.
  • If you can’t pay your tax debt on time, try working on payment plan with ATO to arrange a late payment or to pay by installments.
  • Small businesses may also be eligible for interest free payments for activity statement debts for up to 12 months

PS. How many of these strategies are you using in YOUR business? Which strategies have been some of the most important in propelling your business forward?

StGeorge Bank Challenge Funder Business Connector

About Dinesh Bhatia

Dinesh Bhatia
Dinesh Bhatia is a partner with CFO Advisory working with small to medium sized businesses providing tailored solutions including business improvement advice and support with practical, hands-on implementation. Dinesh is a proactive and solutions–driven professional with over 20 years’ experience in providing financial management services in Australia and overseas. Click to view Dinesh Bhatia's full profile

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