Business Time

Top tips for managing your cashflow in a small business

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After more than a decade making money for other people in digital advertising and marketing services, Ryf Quail undertook what he describes as a career recalibration.

He went to the University of Otago to complete an MBA, before returning to Auckland to launch Fresh Focus, his own market research and digital consulting business at the beginning of 2013.

Three months without pay

What followed was around three months without a salary as the business built momentum.

“In a service business such as ours, from meeting the client to having the money in your bank can sometimes take 90 to a hundred days.”

And while Mr Quail had planned for the period, it was tough. “We had very big credit card bills,” he says.

Cashflow the top pain point

The Ministry of Business, Innovation and Employment says its research indicates cashflow is the top pain point for small business.

It’s a finding backed up by the Managing Director of “MyBusinessPartner” Wayne Tollemache.

“In my experience SME’s tend to focus on top line revenue, winning business and getting the job done, rather than cash flow. How much money they make is often misunderstood as they focus on gross margin rather than net profit,” he says.

Ryf Quail agrees establishing terms for payments is crucial, particularly when you’re in an industry where payment is haphazard.

When you engage a client in a service business you don’t just quote a price you also quote a payment structure.

“You’ve got to hold cash. If you don’t hold cash, you’re dead, you can’t move. You lose all your agility.”

And, he says, penalties for non-payment work.

“You might think the job is worth $100 but I’ll make it $120 and give a $20 discount if you pay within a certain period.”

Cashflow management tips:

  1. Understand all costs when pricing work and ensure that net profit is the goal.
  2. Have clear payment terms and conditions with customers including penalties for non-payment.
  3. Do a monthly balance sheet to show cashflow.
  4. Follow up on non-payment promptly.

Planning for big ticket bills

The Ministry of Business, Innovation and Employment says it hears regularly that the first ACC bill and tax bill can come as a shock to new businesses, and create problems for cashflow. Check out the IRD’s ‘Tools for business’ for support relevant to your business.

Cash is key

When Ryf Quail was completing his MBA, something a lecturer said stuck in his mind; that cash is more important than your mother when you’re starting your own business.

Mr Quail says he didn’t realise what the significance of this statement was until he was starting his business. He says, before you embark on your journey, you should prepare detailed cashflow projections with clear expectations around payment terms.

“If you know that, you can alleviate some of the stress,” he says.

Relationship, relationship, relationship

Your relationship with your bank manager is a central part of this equation. They need to understand your business in order to support you through issues with cashflow.

Ryf Quail says strong relationships with clients are also key.

“If you’ve invested in the relationship with the client anything is possible. If that client really likes you and you are doing a good job and you say, mate I need your help to get the money, they do things for you to make sure you get paid quickly.”

“People realise that you are trying to provide a service or product. There are good people out there who see what you are trying to do and will pay you up front, they can be great business partners.”

Written by freelance writer, Alistair Wilkinson

Image fact reference: Entrepreneur

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Information contained in this article is intended as general information only. This article does not take into account your current financial situation, and goals and is not personal advice.

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