Last month, our blog on how to create a cash flow forecast was super popular with readers, and we received a lot of questions – obviously Aussies need more information on the role of cash flow in their small business bookkeeping!

So, this month we’re expanding on things, covering how to hold on to your money for longer with a float for cash flow, and the easiest tricks to boost your cash flow fast. If that would be helpful to know, read on.

Remember, last month we talked about ‘tipping points’: a concept where your operating costs and direct costs can maintain themselves with what’s coming in. 

When either side is out of whack, things can teeter off the edge quickly – you’ll either have not enough to cover expenses and be in shortfall, or you’ll have surplus money that’s not working for you, potentially making you slack on ensuring you’re being paid elsewhere. 

A clear tipping point gives you the confidence to plan ahead, and even create helpful ‘what if’ scenarios.

While a certain level of flexibility in these numbers is fine, a solid float for cash flow ensures that you’re not letting go of money unnecessarily, and gives yourself the best leverage now for future decisions.

What’s a float in cash flow?

Like the name suggests, a float is designed to help your small business bookkeeping stay above water – financially. It’s really just the definition of a difference between the cash balance reported in your accounting, and the amount of cash you actually hold in your account – the money is ‘floating’ between two places.

The difference in these numbers exists for a couple of reasons. One is because, in a normal payment, there are delays when money is transferred. This only tends to be a few days at most due to the banks. But the other reason, and the real key to success? It’s when a business has been strategic with how they’re paying their bills.

As a small business, it’s really in your best interests to hold onto as much money as you can, for as long as possible. This is especially true for big outlays, like equipment, vehicles and employee bonuses. As experts in small business bookkeeping, though, we see time and time again people doing the opposite of that… paying entire bills on time, or even early.

Most do because they see it as a point of pride, and simply hate having the admin of a delayed payment over their heads. Others do it because they don’t know that they even have the option of a payment plan or finance arrangement.

Many have no idea how to begin negotiating trading terms. What to say? What to ask for? How to convince a supplier it’s a beneficial move for them?

Inherently, paying upfront comes with risk too. What happens if the suppliers’ business goes under and the stock isn’t fully finished, or delivered? If you pay a big bonus all at once, and then your employee leaves suddenly? 

A strong float for cash flow not only keeps more money in your pocket and reduces your risk, but also works to improve your credit rating and open up more doors for financing, and business loans. These tips can help you get started with creating yours:

  • Be selective with the slow route – There’s no need to approach all of your suppliers all at once – but don’t be afraid to ask those you have a good relationship with first. Remember, larger companies often have longer payment terms themselves, so will be more open to negotiation. Once you feel more confident from a few ‘yes’s’, you can review your other relationships to see what can be negotiated further.
  • Reassuring is critical – It’s not uncommon for the request of delayed payment terms to make your supplier nervous initially. So, reassure them that it’s purely for cash flow reasons, and has nothing to do with a cash flow shortage. Remind them that you’re a good customer, and that a cash flow boost could actually allow you to spend more in the longer term with them.
  • Be prepared to compromise –  Always know your why and arrive prepared for any negotiation. Ideally, you know what sort of payment terms are common for your industry, so you have a well-researched position to come in from. If your supplier is sticking for 12 months, and you want 24, consider meeting them halfway. Can you land on a middle ground, like 18?
  • Be prepared to give a little to get a little – Remember that a small down payment as a gesture of goodwill can go a long way with some people. It shows that you are serious about your commitment and respect that they themselves have cash flow considerations that will be impacted by this.
  • Always honour your debts – Everyone loves the Lannister’s philosophy on money. Don’t be tardy with payment deadlines when you’ve agreed to them – your integrity is your reputation.
  • Put it in writing – When you come to a suitable arrangement for both parties, always put it in writing to cement what was agreed. A paper trail is just smart business.

What’s a good amount for a standard float?

This really depends on your business, but as a general rule of thumb, try and keep your float to at least an average quarter’s costs, with perhaps a minor 5% contingency amount over that for unforeseen expenses, or slow seasons

We sometimes get asked about the difference between cash and credit card float in cash flow, too. This is when a business owner is low in liquid cash, and using their credit card to ‘float’ the difference for bills. 

While there can be a place for smart credit card use for perks like points and insurance, this is something we generally don’t recommend. It means less free cash in the business’s pocket, and potentially bad habits.

5 quickfire tricks to boost your cash flow fast

Once your small business bookkeeping software shows you’ve got more money sitting with you versus going out, it’s never a bad idea to then look at ways you can actually create extra cash flow generally. 

Some of these 5 quickfire tips might help: 

  • Raise your pricing – With the cost of everything rising for everyone across the board, think about whether this might be a good time to reconsider the cost of your product or service. This is a great government resource about what to consider when creating a pricing strategy.
  • Always be clear on spend – When planning for campaigns or special events (especially with the silly season coming up), always know what you’re planning to spend – assign realistic budgets to your activities, and don’t go over it. Christmas is a time when everyone overspends, so don’t fall into the trap.
  • Think outside the box with sales – Small businesses are becoming more creative than ever about how to leverage dates, deals and even times of the day to boost cash flow. Some are focusing on their sales pitch and investing more in staff sales training, others are bundling low-moving stock and remarketing it, and others are leveraging social media trends and platforms. Think outside the box and see what you can do.
  • Manage your existing inventory – Review all your inventory expenses and move any stagnant stock as soon as possible. Ahead of Christmas, can you remarket any of it as specific Christmas or New Year ware? We love this resource on strategically assessing and managing your inventory.
  • All hail the statistics – Tools like Analytics Plus in Xero can be great for cash flow forecasting and business at-a-glance oversight. As small business bookkeeping experts, we can not only set this up for you but offer advice to get you started.

So, that’s a wrap on cash flow. In our next blog post, we’re going to be tackling everything budgets – including how to set one up and what to avoid in yours.

In the meantime, if this has inspired you to build or improve your float in cash flow efforts, reach out to us now.

We’re small business bookkeeping experts and obsessed with helping all Aussie businesses manage their finances with ease and clarity.