Cash flow makes or breaks your business, so safeguard it!

According to a recent survey by research firm East & Partners for lender Scottish Pacific, nearly 80% of owners of small and medium enterprises said cash flow issues caused them the most sleepless nights.[1]

Which then begs the question, what might you do to improve your cash flow and sleep better at night?  Here are five tips you can take that can help!

1.   Build a cash reserve

We’ve often heard “Cash is King” but the truth is, it’s really Cash Flow!  Cash flow is the true lifeblood of any business. To ensure that it makes, not breaks, your business, it’s important to build a robust cash reserve. This may help you meet your financial obligations in difficult times and allow you to take on opportunities to grow your business.  Sometimes, that’s easier said than done, but worth working towards.

2.   Separate business & personal money

Keep business and personal expenses separate!  It makes it so much easier to understand your business’s cash position at any given point. It also ensures that you don’t use money meant for your business on personal expenses; like that holiday or your mortgage.

3.   Get paid on time

If your business hasn’t been actively pursuing unpaid invoices, you may want to make it a practice – and have a strategy – to regularly chase up payment. Finding ways to encourage prompt payment, such as offering a discount to early payers, can help.

And if that’s something that you find cringe-worthy – outsource it.  Ask your book keeper if they’ll make those calls you hate for you each week to stay on top of things.

4.   Control business costs

Controlling costs might help you to maintain a healthy cash flow. Experts suggest taking stock of your business expenses regularly to identify where you can cut costs without sacrificing growth. This may include reviewing your suppliers and negotiating better rates with them.  Review whether they’re items that you can’t avoid (like taxes) to items that you probably should do (like marketing) to the ones that you can go without (like sponsorship.)  Even if it’s just until things turn around.

5.   Protect your business

By taking out business expenses insurance and/or key person insurance, you may help ensure your business can meet its running costs if you or a key employee is too ill or injured to work. Both insurance plans provide a monthly benefit if you or a key person in your business become incapacitated.  Absolutely vital if there’s key people you just can’t do without!

Work with a professional

Your professional financial adviser tailors insurance plans to your business’s cash flow protection needs, safeguarding what you’ve worked so hard to build.  Is it time you had another look at your strategy?

Note

[1] Scottish Pacific and East & Partners, October 2018, ‘SMEs flag higher revenue growth, but prospects could be dampened by declining property market and cash flow issues,’ accessible at: https://www.scottishpacific.com/media-releases/smes-flag-higher-revenue-growth-but-prospects-could-be-dampened-by-declining-property-market-and-cash-flow-issues

Successful Investor Secrets

The investment world can change dramatically from one month to the next.

These secrets of successful investors never go out of style!

Successful investing can be one of your biggest allies in the quest for long-term financial security. Unfortunately, unsuccessful investing can leave you wishing you’d kept your money in the bank, or under the mattress!

So what are the secrets to making your investments achieve what you want them to?  Here are some of the tactics used by successful investors around the world.

1. Start with a plan

Smart investors don’t just look for ‘good’ investments. They look for investments that will help them achieve specific goals.

Are you interested in income or growth or a combination of both from your funds?

You may be seeking a return above that available on term deposits.  There are other investments such as shares and fixed income, which may generate higher returns than cash over the long term, however, they are usually more volatile too, so investors need to consider both the risk and return components of their portfolio.

2. Diversify

One of the main goals of investing may be to ensure you have a mix of assets that are likely to perform well at different times – helping you survive any downturn in a specific market or industry sector.

While many Australian investors are heavily exposed to Australian shares, a well-diversified portfolio will generally hold assets in each of the major asset classes (e.g. Australian and international shares, property, fixed income and cash)And can drill down further, across sectors and industry types.

Even if you want to stick with just one asset class and be a guru at that, diversification still helps.  e.g. Property: considering where you invest (location! location! location!) along with the type of property (land, residential, commercial or industrial) also can make a difference.

3. Watch costs

It’s easy to get fixated on the returns your investments can generate. But successful investors always keep track of, and seek to minimise, fees and taxes associated with owning them.

A ‘buy and hold’ strategy can help avoid transaction costs like brokerage, or buy and sell spreads from managed funds. It can also help you reduce capital gains tax, which generally decreases by 50% when you’ve held an asset for over 12 months.

4. Market Timing

Despite periods of significant volatility on a daily basis, over the long term, investments in assets such as Australian or International Shares have generated strong returns.

Holding when everything is going pear shaped is difficult, but you’re more likely to recover stronger then pulling out and trying to work out when to get back in.

5. Don’t panic!

When share markets retreat (which they inevitably do), smart investors don’t hit the panic button and sell long-term investments based on short term volatility – this is made easier by following Step 1 “Start with a Plan”.

Instead, if you continue to invest during a market downturn, you may be able to buy high-quality investments at a lower price than you could if you waited for markets to recover.

Following the GFC or Global Recession, when the stock market bottomed in early 2009, many investors sold out of equities and held large proportions of cash in their portfolios. The opportunity cost of this decision has meant that some investors have missed a significant rally over the past decade.

6. Protect your assets

Even a carefully constructed investment strategy can come unstuck if you need access to your money in an emergency.

A smart strategy is to ensure you still maintain a sizeable cash reserve (even if it’s offsetting your mortgage), and put in place appropriate risk mitigation insurance plans such as income, TPD and life insurance. Having appropriate insurances in place can help prevent the need for a ‘fire sale’ of your investments if you suffer a serious illness or accident.

Tip: Income protection typically replaces up to 75% of your income if you can’t work due to an illness or accident.