One of the questions clients ask the most is how to improve business cash flow. Our experience also shows that as our clients improve their knowledge and implement strategies to support clarity around cash flow, their business outcomes improve. Especially in the trades and construction industry because we know that costs like materials and labour can fluctuate due to factors out of your control.
Knowing where you stand from a cash flow point of view is vital. I’ve put together my 9 proven tips to help you control your cash flow and ensure you are ready for those unexpected events.
Tip 1 - Create a Budget
Creating a budget for your business may sound daunting but it makes all the difference when you have a blueprint for the costs and revenue expected in your business. Here are some key questions to address:
Do you have a plan for the upcoming financial year?
Do you know what sales you need to achieve to cover your costs?
Can you see any areas for improvement?
Is something costing you more than you thought?
Do you need to improve your profit margin on your invoices to adequately cover your jobs?
Here is an article that delves deeper into the topic of budgeting.
Tip 2 - Super and Tax Liability bank accounts
Set up separate bank accounts for your super and for your tax liabilities.
Super compliance account:
When you complete your pay runs, make sure you put aside the correct amount for PAYG withholdings and your super payments. From 1 July 2026 employers will be required to pay super at every pay run. So get into good habits now.
BAS and GST payments:
When you receive payment for your invoices, put 10% of this amount into your GST account in preparation for your upcoming BAS lodgement. In addition, put aside the correct amount for PAYG withholdings from your pay run. Accumulating the funds like this means that when your quarterly BAS is due, you already have the cash available to pay it.
Tip 3 - Keep on top of your Xero file
Allocate time every week to manage your Xero or accounting software file and keep on top of your invoicing and bills. Choose a time when interruptions are less likely and block time out in your calendar. Consistency is key!
Make sure you have your payment terms clearly noted on your invoices and follow up late payers. Efficiently following up overdue amounts, especially for regular clients, sets the expectation of prompt payment and is more likely to deliver the desired results.
Tip 4 - Invoice projects in stages
Cost and quote your jobs in stages. Once each stage is complete, send out the invoice for the work. This will make it easier for your customers to make payments of smaller amounts instead of one large lump sum at the end of the job. You will also receive a more consistent flow of income. The other benefit is that you will know early if people are struggling to make their payments and you can manage the situation accordingly.
Tip 5 - Set up tracking for individual jobs
Clarity is key to managing cash flow and tracking your spending on individual jobs is the best way to get the details you need. To do this, you can set up tracking categories in Xero along with category options. This will enable you to see if you are operating within budget on each project and adjust early to avoid costs blowing out.
Here are the instructions to set up tracking categories and options
Tip 6 - Building a business cash flow buffer
Building a business cash flow buffer is the best way to protect your enterprise from unexpected costs. Or equally, be prepared for unexpected opportunities!
You can approach building this buffer in two ways:
Commit to setting aside a specific amount of money into a dedicated savings account each month
Set yourself a lower cash limit in your main business bank account. At the end of each month, save the cash amount that remains above that limit into your dedicated savings account.
Name this account so that you aren’t tempted to dip into it for simply anything. Storm season account or Emergency only account, whatever language works for you.
Tip 7 - Cut out the middle-man
Consider where you make your purchases for your business and whether there is a middle-man involved. Do you use a retailer for all your materials and supplies? Could you go direct to the manufacturer or wholesaler to see what you can save? Cutting out the costs of a middle-man puts more money back in your pocket. Numerous clients have taken our advice on this and gone on to save between 4% and 6% of the cost of their purchases.
Tip 8 - Review payment terms
Regularly review your payment terms. How consistent are your payment terms? Are you offering extended payment terms that are simply not required for some customers? Could you shorten these to bring in cash sooner?
The same principle applies to your suppliers. Are you able to extend the payment periods for purchases with your suppliers? Tackling payment terms on both fronts will definitely improve your business cash flow.
Tip 9 - Getting the most out of your Xero dashboard
Xero accounting software has lots of features and functions to help track cash flow. Not only does the dashboard allow you to see your financial position at a glance, but you can also personalise your dashboard to suit your business requirements.
How can ABA help you improve your business cash flow?
At ABA Advice Beyond Accounting, we are committed to helping you understand your numbers. We can help you work through your business cash flow challenges in our business performance meetings that are included in your service package. Or, if you have a quick question, you can give us a call and we can help you right away. Don’t waste any more time struggling with your cash flow. Contact us today!
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