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Tips On How To Manage Your Cash Flow – For Small Business Owners/Contractors

By 26 April 2022July 1st, 2022No Comments


Running a small business requires owners to carefully plan and review their finances. While someone’s overall annual income may be strong, the flow of money is not guaranteed to be regular and many owners have to wait weeks or months between pay cheques.

The key is to try and avoid running out of money before the next pay and having to go overdrawn or use credit cards (which charge high interest rates) – it is important to manage your money carefully.

Here are some suggestions to consider…

Set up a Budget Planner

To start with, it’s a good idea to set up a Budget Planner – This will give you an immediate snapshot of your business’ income and allows you to strategically plan your future spending in advance. Although you cannot predict unexpected bills and other circumstances, a budget planner will give you some guidelines to follow. You will find some on the internet or put one together yourself in excel.

Pay yourself a wage
Instead of treating all the income you earn from your business as your personal spending account, pay yourself a weekly wage. Be mindful that if you just draw money from your account the ATO will require you to pay tax on it at some point in the near future and that amount will build up without you realising and the final figure might shock you. By paying yourself a wage you will also automatically give yourself a target per month of what the minimum is you need to get in the door through sales.

Maintain separate bank accounts
You should also maintain separate bank accounts for business receipts and personal spending. It’s also a good idea to have separate credit cards one for personal and one for company expenses. Also look at physically paying your wages across to your personal account then draw it from there that way you will know your personal cash flow AND your business cash flow.

High-interest savings
Deposit or transfer your business revenue into a high-interest savings account and only draw out from this account to pay your set wage, or actual business expenses. By placing your business earnings in a high interest account it makes a simple way of earning extra income.

Personal budget
Set a personal budget to help you live within your wage, and so that you don’t dip into business funds.

Plan ahead for holidays
As a small business owner or self-employed worker you may not enjoy the benefit of paid holidays: it’s up to you to set aside funds. Saving a little extra on a regular basis will help you manage through any quiet business periods, as well as funding a well-deserved break.

Outsourcing
Being an independent contractor or small business owner is an exhausting role. Not only do you have to do your job in your specialised area, but you also have to complete all the associated paperwork with owning a company, such as: paying bills, invoicing, Business Activity Statements, tax returns, payroll, etc. Having to create a budget planner, planning ahead and following the plan is an added hassle that many business owners don’t have time for. Engaging with an outsourcing company could take a lot of those hassles away and give you time to start planning for the future. This will help you focus on managing your core business and maintaining a positive cash flow.

Time is money
‘They’ say time is money what ‘they’ mean is for you to value your time so make sure your time is spent in the area you want to work in/on within your business. Outsource or employ people to do the other parts, believe it or not, if you’re focused on your core skill this will also add to cash flow control.

For more information on how Pendragon Management could assist…

talk to us  [email protected], book an appointment to discuss or call 02 9407 8700

We look forward to hearing from you.