The Cashflow Guide

A story about cashflow…

There is something genuinely wonderful that happens when a business owner finally gets on top of their cashflow.

Instead of that low-grade dread about running out of cash, you’ve forward planned and you know what your cash position is and you’ve planned for any shortfalls. Honestly, once you get to that stage you’ll never want to go back!

I’ve built businesses at both ends of the spectrum. With my first business, Qi Tea, I bootstrapped everything — importing organic, Fairtrade tea from China, selling into Coles and Woolworths, scaling up over a few years from small LCL pallets up to multiple containers a month.

When you have zero financial cushion (which was my situation) and supermarket buyers expecting stock on the shelf every single week, watching your cashflow becomes a core business function. And that discipline of knowing all my numbers inside and out, kept the business alive and growing for twelve years.

Being able to project your cash position is one of the most valuable things you can do for the long-term health of your business.

Then I started Eloments Vitamin Tea years later. My business partner and I raised investment. Suddenly money was less tight (or so I thought), and slowly my cashflow discipline relaxed as I was pulled into dealing with other headaches. We had retailers across Australia, the UK and the EU, the most complicated supply chain you can imagine and I let expenditures blow out. There was a lot of valuable business lessons in that experience and the biggest one was – you’re finances will tell you a LOT about what’s going on in your business if you’re willing to look honestly.

One of the lessons I did learn was that cashflow management isn’t just something you do when money is tight. It’s something every business benefits from, all the time. Even when you’re flush, you want your cash working hard. Even when sales are strong, you should never take cash for granted.

What is cashflow?

This can catch inexperienced business owners off guard – cashflow is not profit, nor is it revenue.

Revenue is when you earn the money (eg issue an invoice to a customer). Profit is an accounting concept — it is revenue earned minus expenses incurred (eg you have received an invoice from a supplier but you haven’t paid it yet. Cashflow is about the timing: the actual movement of real dollars into and out of your bank account, NOT when the expense or revenue is incurred.

Here’s a simple example. You sell a $10,000 order of stock in June on 60-day payment terms. You record the profit in June — but the cash arrives in August. Your supplier invoice for that stock is due in July. In that 30 day gap between when you receive the money from your customer you have to pay your supplier. In growing business, that gap can deplete your business of cash.

It is just as necessary to track cashflow as well as profit.

If you’re importing goods, carrying stock and selling to retail or wholesale, that gap can stretch to 90, 120 days or more. The longer it is, the more cash your business is effectively lending to others in the supply chain at any given moment.

Signs you need to track your cashflow better

Most of these aren’t dramatic warning signs — they’re quiet, background stresses. Do any feel familiar?

Paying some suppliers late and juggling payments
Running lower on stock than you’d like because reordering feels like a stretch right now
A vague anxiety about cash because you don’t know your exact position
Using short-term, expensive finance more regularly than feels comfortable
Not being completely sure whether payroll will be fine next month
Avoiding looking at the finances because it feels overwhelming rather than interesting
Checking the bank balance to decide whether you should pay a bill, rather than checking a forecast
Your bookkeeper or accountant tends to be the first one to flag a cashflow concern, not you

For a long time in the early days of Qi Tea, I avoided really looking at my cash position because it was stressful. I was sometimes one or two months from serious trouble and I just didn’t want to face it. The moment I started looking clearly — even when what I saw was hard — everything got more manageable.

A business can be profitable on paper and still run out of cash, in fact this is surprisingly common; the faster you’re growing the more cashflow pain you’re likely to experience.

Why is cashflow management important for small business?

Around 80% of Australian SMEs experience cashflow problems at some point. The main drivers are declining revenue (35%), low cash reserves (30%) and seasonal swings (27%). These aren’t unusual or exotic situations — they’re the normal day-to-day of running a small business.

What separates the businesses that get through those periods from the ones that don’t is usually not the size of the problem. It’s how early the owner saw it coming and how much time they had to respond.

When you understand your cashflow, some genuinely good options become available to you:

You can spot a cash crunch 60 to 90 days before it arrives and work through your options calmly
You can negotiate with suppliers from a place of good management, rather than desperation (suppliers will get nervous and likely cut off your credit if they have to chase you for money)
Growth decisions become something you can make with confidence rather than blind hope
Applying for finance happens when you’re in a strong position, not when you’re in a hole (banks will only loan to you when you don’t need it)
The background hum of financial anxiety gets much quieter

That last one is underrated. A business owner who feels genuinely on top of their numbers makes better decisions across the board — because they’re not burning cognitive energy on financial dread.

Cash Conversion Cycle (CCC)

The Cash Conversion Cycle (CCC) is the average number of days between when you pay for your inputs — stock, materials, labour — and when you actually receive cash from your customers.

Say you pay your supplier within 30 days, you hold stock for 60 days, and your customer takes 45 days to pay. Your CCC is roughly 75 days. For every dollar you put into stock, you’re waiting 75 days to see it back. Knowing this number gives you something specific to work on — and shortening it, even by two weeks, can meaningfully improve your cashflow position.

Debtor Days is the other one — especially important if you sell B2B. If your terms are 30 days but your customers are averaging 55, that 25-day gap is cash that belongs to your business sitting in someone else’s account. At volume, that can be tens of thousands of dollars. Knowing the number means you can do something about it.

People will always stretch the boundaries and pay you late if they can get away with it. You can be kind and still hold your customers accountable to their payment terms. If you politely keep asking for payment on time, you’ll tend to be the ‘squeaky wheel’ that gets paid first (ie on time).

How closely do you need to track cashflow?

Honestly, it depends on your risk profile. A simple service business with regular monthly income and low overheads can get by with a monthly check-in. A product importer managing multiple shipments with long lead times and big customers on payment terms — that’s a weekly conversation with the numbers.

Situations where you’re benefit from closer cashflow tracking

One customer represents more than 20% of your revenue — a slow payment or dispute from them has an outsized effect
You carry high fixed costs — rent, salaries, leases — that continue regardless of whether sales are strong
You pay for stock before you’ve sold it (almost every importer and product business)
You’re growing quickly — growth is expensive and it consumes cash faster than most owners expect
Your business has seasonal peaks and troughs — the good months fund the quiet ones, and that requires planning
Customers are showing signs of financial stress and are paying more slowly (and there’s a danger of insolvency)
You don’t yet have at least two to three months of operating costs accessible in cash or credit

If one of those apply to your business, a 13-week rolling cashflow forecast is worth setting up (the detail you track depends on your individual needs). If more than 2 apply, weekly or monthly attention is where the peace of mind lives.

Cashflow management strategies

These are the areas of your business where active management has a direct effect on cashflow. Some are a ‘set once and review quarterly’ situation. Others will benefit from weekly attention.

Budgeting & forecasting

Your roadmap and your early warning system.

A budget tells you where you plan to go; a forecast tells you where you’re actually headed. Together they let you spot the gap between intention and reality before it becomes a problem.

You can set up a cashflow forecast in a spreadsheet, in Xero (or whatever accounting app you’re using) or there’s a multitude of other apps out there. Use whatever makes sense for you (ask ROI if you want advice around this).

Client invoicing & payment terms

Invoice the moment work is done or goods are delivered — not at the end of the month. Make it easy to pay (card, direct debit, BPAY). If you offer 30-day terms, actively manage your receivables – if you’re like most business owners and you don’t prioritise this and it’s a bit random, pay your bookkeeper to do it. It’s too important to neglect.

The difference between a business that chases invoices and one that doesn’t can be weeks of cashflow.

Expense tracking

Know what’s going out, when, and whether it’s committed or discretionary. Many businesses have expenses that were set up years ago and never revisited — subscriptions, insurance, logistics arrangements.

A quarterly audit is a very worthwhile habit – you’d be shocked at the waste!

Supplier payment terms

An underused lever.

You don’t have to pay early unless there’s a meaningful discount for doing so. Use your full payment terms. And if you’re growing fast and cash is stretched, it’s entirely reasonable to have a conversation with key suppliers about extending credit terms.

That said, try to never pay late, that way you’ll get a good reputation and when you need to stretch a bill payment out, ring and ask permission. People appreciate the communication and will almost never say no

Inventory mangement

Excess stock is cash sitting on your shelves not working.

Stockouts cost you sales and supplier goodwill. Getting your reorder points right — and knowing your lead times deeply — is genuinely valuable work for any product business. As an owner of a product business, this is key operational aspect of your business that investing in will be worth your while. Book a chat with ROI Bookkeeping about setting up a system that will work for your business.

Cash reserves

A buffer of at least one month of full operating costs in cash, plus access to another two months through a credit facility or overdraft, gives you breathing room. This is not spare cash — it has a job to do.

If your business is subject to seasonal ups and downs, special cash forecasting is required. Make sure the money you have sitting around is earning interest. There can be a tendency for some entrepreneurs to push their cash to the limit and operate with very little in reserve. You can only do this for so long – the stress will detract from your quality of life! (Speaking from experience in my early days!).

Finance & credit instruments

Overdrafts, invoice factoring, inventory finance, asset finance, credit cards, business loans — there’s a right tool for each cashflow situation.

The key is getting the right finance for the need so you’re not overpaying or stretching yourself too thin (see Section 6).

Financing principles that help to manage cashflow

The most important principle in business finance is this: match the financing to the use. Get it wrong and you’re paying the wrong interest rate, straining your cashflow with the wrong repayment structure, or locking yourself into terms that don’t fit.

Matching the tool to the job

If you’re buying an asset that lasts five to seven years — a piece of equipment, a vehicle, a fit-out — a fixed-term equipment loan or lease is a better fit than using working capital. The interest rate is lower because the lender can secure the loan against the asset, the repayments are predictable, and your operating cash stays free.

If you’ve landed a big order and you need to pay your supplier 60 days before your customer pays you, that’s a working capital problem — short-term, cyclical, repeating. A better tool here is invoice factoring (effectively selling that receivable for immediate cash), a business overdraft, or inventory and import finance. Sometimes even a credit card can suffice, if the numbers work. A five-year business loan is the wrong shape for that problem.

One of the most useful things you can do is apply for an overdraft or credit facility when your business is in a reasonable financial position. It’s pretty impossible to get money out of banks when you really need the money (without providing security).

If you are using your residential home as security for business lending, play out the worst case scenario if your business goes under (actually write it down). Can you live with thatscenario?

A quick guide to cashflow instruments

Business overdraft

Good for short-term, unpredictable cashflow gaps. Low cost when you use it. Apply early, while your financials are looking strong.

Business credit card

Useful for day-to-day operating expenses — creates a payment float and can earn rewards. The discipline is paying it off monthly where possible.

ROI Bookkeeping has crunched the numbers – it NEVER pays to alter your spending habits to get points. If you happen to earn points, great. If not, do not alter your purchase decision to get them. It’s never worth it.

Invoice factoring / debtor finance

If you sell B2B and have long debtor days, selling receivables to a funder gives you cash now rather than in 45-60 days. Typically costs are 1.5-4% of the invoice value, but can be genuinely worthwhile for high growth, high margin businesses.

Inventory / import finance

Designed for product businesses importing goods. The funder pays your supplier; you repay once the stock is sold.

This can work well for businesses that are doing substantial volume.

Equipment finance / lease

Ideal for fixed assets with a clear useful life. Preserves working capital for the things that need it.

The interest rate is usually better than short term finance rates as the principal is secured against the asset.

Owner equity / director’s loan

Injecting your own capital buys time and flexibility. If you go this route, document it properly — either as equity or a formal loan — from the start.

Best to see a financial planner and accountant if you’re putting a substantial injection of capital in.

How to track cashflow for a small business

The best system is the one you’ll actually use. Complexity for its own sake doesn’t help anyone. The goal is clarity, not comprehensiveness.

Nicole at ROI has experience is varying methods of tracking cashflow. Feel free to book a free chat to discuss options.

For simpler businesses with lower cashflow risk:

A monthly cashflow tracker — either in your accounting software or a clean spreadsheet — is often plenty. Know your average monthly income, your fixed costs, and your upcoming variable expenses. Review it once a month. That habit alone puts you ahead of a lot of businesses.

For product businesses, importers, and faster-growing businesses:

A 13-week rolling cashflow forecast is the standard worth aiming for. It gives you three months of visibility — far enough to see a problem developing, close enough for the numbers to be genuinely accurate. Reviewing and updating it weekly or monthly becomes a 20-30 minute rhythm rather than a major exercise.

When I was running multiple container shipments a month from China, I tracked income and expenditure by shipment so I could see exactly when each parcel of cash was committed, when it would land, and what the gaps looked like between the arrival of the stock and the arrival of the payment. That granularity saved me from several near-misses.

What a 13-week rolling forecast includes:

Opening cash balance for each week or month
All expected cash inflows — invoiced sales, customer payments, other income
All expected outflows — payroll, rent, supplier payments, BAS, loan repayments, super (don’t forget Payday Super from 1/7/26)
Closing cash balance for each week
Any large one-off items — import payments, tax bills, equipment
Available credit as a separate line – overdraft, credit cards

Depending on the rhythm of your business, you can either deep a cashflow review weekly, fortnightly or monthly. Each business is different, the important thing is to match your process to your needs. There’s no point adding a lot of detail that isn’t needed. For example, there’s no need to add a lot of detail for fixed costs if they don’t change, just enter those as one figure.

You can evolve your cashflow forecasting and tracking method until it optimised – don’t stick with a system that doesn’t work property for you!

A Simple Dashboard — Green, Amber, Red

One of the most practical things you can do is build a simple status system for your cashflow position — a quick way to know, at any given moment, whether you’re in a good place, a watchful place, or an action-required place. Check it monthly. Weekly if your business is in a high-risk category.

Status	Signals	What to do
🟢 Green	3+ months OPEX in reserve. Debtors on track. CCC stable or improving.	Enjoy it — and make your cash work. Park the buffer in a high-interest account. Consider bulk-buy discounts. Think about growth opportunities.
🟡 Amber	1–3 months reserve. Debtors creeping past terms. Overdraft being drawn on unexpectedly.	Time to get curious about your numbers. Pause discretionary spend. Chase debtors politely but promptly. Review upcoming large payments.
🔴 Red	Less than 1 month reserve. Overdraft at limit. BAS, PAYG or Payday super overdue. CCC blowing out.	Reach out for help today. BAS and Payday super arrears are a serious warning sign. A good bookkeeper or accountant can help you navigate a path through this.

A note on BAS and Payday super: falling behind on these obligations is one of the most common early signs that cashflow systems need attention. These aren’t debts you want to accumulate — the ATO moves quickly when obligations are overdue. If BAS or Payday super has slipped, the most helpful thing is to get a clear picture of the situation and reach out for help sooner rather than later.

Setting Up Your Cashflow Plan

Write down all your pain points

Before choosing a tool or method, it helps to write down where cashflow actually causes you stress. Get specific:

Which suppliers or payment obligations feel most unpredictable?
What’s your biggest lumpy expense — GST quarters, annual insurance, stock replenishment?
How long between paying for stock and getting paid by your customer?
Do you have strong seasonal swings?
Which customers are you most exposed to if they pay slowly?

Choose a method that fits your actual situation

Lower complexity: Xero Analytics Plus or a clean monthly spreadsheet.

Medium complexity: a 13-week rolling forecast in Float or Cash Flow Frog (tools evolve and can become outdated, so check out our Resources Hub for up to date info).

High complexity: if your cashflow is extremely complex, you’re likely using highly customised accounting solutions, in which case, working with an expert is the way to go.

Give it to someone to own

Set it up with real data, then assign someone to keep it current. It doesn’t have to be you — in fact, it often works better if it isn’t, so you’re reviewing rather than doing.

That person needs clear instructions around the processes: what to update, how often, and what to flag. If your cashflow is done in Xero (either in Xero or in a linked app), your bookkeeper can do this for you, which is a really cost effective option.

Let it evolve

Your cashflow system should grow with your business. If it becomes onerous or stops reflecting reality, change it until it is fit for purpose again.

Build a buffer – know your ‘take action’ trigger

The goal worth working towards: at least one month of full operating costs sitting in cash, and access to another two months through a credit facility or overdraft. That’s your business’s immune system.

There are also a few trigger points worth knowing in advance — moments where the right move is to act rather than wait:

Moments worth responding to:

Cash reserve drops below two months of OPEX — review your discretionary spend and look at your upcoming commitments
Debtor days blow out by more than 15% from your target — time to warm up your debtors follow-up process
You draw on your overdraft two months in a row — worth understanding clearly whether this is structural or temporary
BAS or Payday super falls behind — if you don’t have a clear plan to remedy your cashflow situation, reach out to an expert
You’re forecasting a cash shortage in the next six weeks — talk to your bank/other lenders, have a conversation with key suppliers, push on your receivables

Beware of overcapitalisation

Cash sitting idle tends to be spent. There are so many things to spend money on when you’re running a business. Question every expenditure. Every expense needs to be justified.

Your cash buffer has a legitimate job to do. Program yourself into thinking that your buffer is not available to be spent unless it’s your absolutely last available option. Your buffer should only be used after you have exhausted all other options – call suppliers and extend terms, call overdue customers, find a short term lender etc.

Park your buffer in a high-interest account so it’s not so easily available and it’s earning interest for you.

Growth can kill you if you’re not careful

Growth can kill your business if you don’t plan your cashflow.

With Eloments Vitamin Tea, we had genuinely exciting revenue growth. The sales numbers looked great. But we had thinner gross margins than the growth required, a complicated international supply chain, and we were scaling faster than the cashflow could support. When the pandemic and Brexit arrived on top of those structural issues, things came undone.

One of the most useful things you can do is apply for an overdraft or credit facility when your business is in a reasonable financial position. It’s pretty impossible to get money out of banks when you really need the money (without providing security).

Growth consumes cash. Every new order won requires stock, freight, labour and if the gross margin isn’t strong enough to fund that working capital cycle, you can run out of cash even while revenue is climbing.

What to do if you need quick cash

Merchant cash advances, same-day business loans, high-rate factoring — these products exist for a reason, and in a genuine emergency they can be a bridge. But they carry effective annual interest rates that can reach 40-80% or higher. Once you’re relying on them regularly, the repayments start to compress the cashflow you’re trying to fix, and the cycle is genuinely hard to exit.

The good news is that good cashflow planning — a rolling forecast, a proper buffer, credit facilities established while things are healthy — is what makes these products unnecessary in most situations. The upfront time investment in getting the system right pays back many times over.

How to improve cashflow in a small business

The biggest differentiator between business owners who navigate cashflow challenges well and those who don’t usually isn’t access to capital or the right software. It’s how early they see what’s happening and how quickly they respond.

When Qi Tea was going through a genuinely difficult period — too many fixed costs for the size of the business, margins that weren’t working — I had to look clearly at a situation I’d been half-avoiding. I restructured: cut fixed costs, focused on sales and marketing rather than operations, built up a cash buffer slowly and deliberately. From that point, the business grew every single year for twelve years.

None of that was possible until I stopped avoiding the picture and started working with it. Problems in a business aren’t a sign of failure — they’re just the territory. The business owner who spots a cashflow problem 90 days out can create options. The one who notices on a Thursday when payroll is due Friday has few.

Next steps…

Calculate your Cash Conversion Cycle. How many days between paying for inputs and collecting from customers?
Check your current cash position. How many months of operating costs can you cover?
Write down your top three cashflow risks.
Decide on a tracking method. Commit to it. Give someone ownership of it.
Apply for your overdraft or credit facility now, while your financials are looking healthy.
Set your green/amber/red triggers and check in monthly.

FAQs

What’s the difference between cashflow and profit?

Profit is revenue minus expenses on an accounting basis — it’s a number on paper. Cashflow is the actual timing of when cash moves into and out of your bank account. A business can show a profit and still run short of cash, particularly when it’s growing, carrying stock, or offering payment terms to customers.

How much cash should a small business have in the bank?

A common target is at least one month of full operating costs in cash, with access to another two months through a credit facility. The right number varies with your risk profile though — a product importer with long lead times and large customers typically needs more runway than a service business with lots of small monthly retainers.

What exactly is a 13-week rolling cashflow forecast?

A tool that maps every week for the next quarter — what cash is coming in, what’s going out, and what the closing balance looks like each week. It’s updated weekly, so the window always stays 13 weeks ahead. It’s the most widely recommended approach for businesses that actively manage cashflow, and it’s less complex to set up than it sounds.

What is invoice factoring and when does it make sense?

Invoice factoring means selling your unpaid invoices to a finance company for immediate cash — typically receiving 80-90% upfront, with the balance (minus fees) when the customer pays. It makes sense when you have strong receivables, long wait times to collect, and the cost of factoring is less than the cost of a cashflow crunch. It typically costs 1.5-4% of invoice value.

Why is credit so much harder to access when you actually need it?

Because lenders assess risk based on your financial position at the time of application. If you’re under cashflow pressure, your numbers look riskier, and you’re less likely to be approved — or you’ll be offered worse terms. The practical move is to apply for overdrafts and facilities when your books are looking healthy, then keep them in reserve.

How do I get my customers to pay faster?

Invoice promptly rather than at the end of the month. Make payment as easy as possible — card, direct debit, BPAY. Follow up systematically: a call does wonders these days. Consider offering a small early payment discount if your margins allow. For larger bespoke orders, a deposit up front is entirely reasonable to ask for.

My business is profitable but I’m always short of cash. What’s going on?

Almost always one of three things: customers are paying slowly, you’re holding more stock than you need to, or growth is consuming cash faster than the business generates it. Calculating your Cash Conversion Cycle usually points to where the issue is sitting.

How can I improve my cashflow fast?

Here are some immediate steps:

Chase debtors and consider offering a discount for early payment
Get on the front foot and ask creditors if you can defer payments until a given date
Offer time limited promotions to bring in cash
Temporarily halt any subscriptions or services you can do without for a month or so (often you can halt subscriptions without loosing any data or settings)
Negotiate a payment plan with the ATO if you have imminent repayments
If you have any staff that want to take leave without pay, you could facilitate that
As a very last resort, get short term private credit (Google ‘short term business loans’) and make sure you shop around for the best rates and lowest fees.

This step takes a lot longer to implement, but in the long term, think about selling off or leasing out underutilised assets. I had a friend whose business had a big warehouse space which they weren’t fully utilising. They were able to lease out the spare space and lessen their fixed overhead costs.

How does growth put pressure on cashflow?

Growth requires cash — for stock, staff, marketing, freight, equipment. If you’re growing faster than your cashflow can fund, you can run out of money even while revenue is climbing. It’s more common than people expect. Before committing to a major growth push, it’s worth modelling what the cashflow looks like under that scenario — not just the revenue.

When is it worth bringing in a bookkeeper to help with cashflow?

Earlier than most business owners think. If you’re making financial decisions based on your bank balance, if you don’t know your CCC or debtor days, or if cashflow is a source of ongoing stress rather than clarity — those are all signals that better systems would help. A good bookkeeper helps you build those systems and keeps them current.

What’s the difference between a budget and a cashflow forecast?

A budget is a plan for revenue and expenses, usually over 12 months. A cashflow forecast takes that plan and maps the timing of when money will actually move — when invoices will be paid, when supplier bills fall due. Both are useful. They answer different questions.

My supplier wants payment before my customer pays me. What are my options?

Classic product business timing squeeze. The main options: negotiate longer terms with the supplier, ask for a deposit or shorter terms from the customer, use inventory or import finance to bridge the gap, or use an overdraft. The right choice depends on your volumes, your relationships and your margins.

See your supplier(s) as a genuine partner in your business, not just a source of cash. Engage them in regular discussions about how you are trying to grow both yours and their business. Ask them for contributions to marketing their product (they can only say ‘no’!). Involve them in your growth plans and they’ll be more likely to extend your terms as they’ll see the benefits.

Is it ever okay to use BAS money to cover cashflow?

This is one of the areas where it’s important to be clear: BAS and Payday super obligations belong to the ATO and your employees, not to the business. Using them as a float creates a compounding problem — the liability grows, the ATO has significant enforcement powers, and it becomes harder to resolve the longer it runs. If things are tight enough that this is tempting, that’s a strong signal to get support and get across the situation as soon as possible.

Ready to get on top of your cashflow?

ROI Bookkeeping works with product businesses, importers, startups and growing SMEs across Australia.
We specialise in Xero and building financial systems that give business owners real financial control.

www.roibookkeeping.com.au