A trap that causes many businesses to go broke, while they're making a profit
There’s a saying in business, “You can go broke making a profit.” And another, “Cash is king. Profit is theory.”
As you know only too well, you don’t pay rent, meet payroll or pay your bills with profit.
You pay them with cash.
A business can make a lot of sales, have a book full of orders, have delighted customers and clients, have a great reputation, be growing, and yet still go broke.
Why? Cash flow.
The business might be profitable on paper, but have no money left in the bank. They become insolvent.
A growing business is often hungry for cash ... hungry for inputs so it can make the business’ outputs, be they physical products, services or a combination of both.
The tragedy in this is that cash flow crises can often be averted. They can be predicted, planned for, and then contingency measures put in place.
For example, if a business has seasonal effects where some months are busier than others, or if a business knows it has some jumps in expenses or fixed costs approaching—such as moving to a larger premises or hiring more staff to cope with growth—then these expenses can be planned for and compared with the planned income in those months.
Which would you prefer to do?
(A)
Call your bank manager and ask for a short-term loan or increase in overdraft when you are urgently in need of the cash (and therefore stressed, and desperate, and not in a great frame of mind to negotiate good terms), or
(B)
Call your bank manager 6 months in advance and meet with him or her to explain the coming cash crunch, the reasons behind it, and plan for the funding in a calm, relaxed, totally-in-control manner?
Not only would you get the loan, you’d impress the bank manager and strengthen the relationship for further funding, should it be needed to support your growth.
The bank manager would see you are a professional operator with a planned approach to your business, not a fly-by-the-seat-of-your-pants operator. (They see a lot of those. They don’t like doing business with them.)
Apart from the relationship with your bank, there’s the immediate effect of sleeping better at night.
We all seek a level of certainty to comfort us. Knowing what lies ahead in business and planning your cash flow gives you a peace of mind and confidence in your day-to-day work that will rub off on those around you...
...in your workplace and at home. It’s a good feeling.
This is one of the reasons we are so passionate about helping our clients put together cash flow forecasts, to help them keep their business on track and to avoid any stressful, unpleasant surprises in the coming months.
It doesn’t matter whether a business is a one-person hairdressing or lawn mowing business, or a 10 person, 20 or 200+ person business.
Every business needs a cash flow forecast.
Running your business without a cash flow forecast is like driving a car at night along a dark country road with only your normal headlights on. It’s hard to see what lies ahead. Some wildlife might come right out in front of you, leaving no time for you to react. CRASH!
On the other hand, a cash flow forecast is like driving along that country road with high beam on. You can see so much more. You can drive with much more confidence. Less stress. And avoid the CRASH!
Another thing we often find in helping our clients build realistic cash flow forecasts, is that we can spot problems and make suggestion that help improve the business’ cash cycle. This puts money in your bank account.
For example, a combination of negotiating better terms with suppliers, tightening up or at least clarifying and enforcing your business’ own credit terms, and reducing stock holding and waste can have a powerful positive effect on your cash flow.
So, if a cash flow forecast is so crucial, why do many businesses not have one?
Simple. Business owners get busy. Busy pleasing customers or clients. Busy dealing with staff. Busy paying suppliers. Busy generating sales.
Also, it’s easy to get ‘too close’ to your own business. “You can’t see the forest for the trees,” as the saying goes.
Having an independent and fresh pair of eyes come in and look at your business—especially cash flow which is its life blood—allows opportunities for improvements to be identified. Things that are there, but difficult for the business owner to see amidst the ‘busy-ness’ of it all.
So, what should do about it? Call us. Take action. A cash flow forecast costs less than you think.
It’s time to turn those high beams on!
Your next step ... Call us on 08 6336 6200 or email us on nparker@ascentwa.com.au to make a time to meet and discuss your options. We’ll then outline the costs so you know exactly what lies ahead.
Need help with your accounting?
June is zooming by! Here’s another handy checklist for business owners—let’s get you sorted for EOFY and tick off those to-dos.
EOFY is almost here. Are you ready? Now’s the time to get your finances in order and maximise your tax return. Our latest guide covers top tax deductions, super contributions & co-contributions, SMSF must-dos, PAYG instalment tips and a 30 June checklist.
Whether you're a first-time landlord or managing multiple properties, understanding what you can claim at tax time can make a big difference to your bottom line. In our latest blog, we break down the most common (and often overlooked) deductions.
Buying and selling property rarely lines up perfectly. The logistics of it all can be incredibly stressful. If you’ve found the perfect next home but haven’t sold your current one yet, a bridging loan can make your move easier, without having to wait on your current property sale. What is a bridging loan? A bridging loan is a short-term loan that gives you the funds to buy a new property before your current property has sold. It’s designed to bridge the gap between buying and selling. These loans are generally interest-only and are typically offered for up to 12 months, giving you time to sell and settle on your current home while already owning the next one. When would I need a bridging loan? You might consider bridging finance if: You’ve found your next home but haven’t yet sold your current one. You want to avoid renting or moving twice between sales. You want more time to prepare your home for market to get the best sale price. You're building a new home while still living in your existing one. How does it work? Peak Debt: The lender combines your current mortgage, the cost of the new property (including stamp duty and legal fees), and any interest (if it’s being capitalised). This total is known as your Peak Debt. Interest Only: During the bridging period, you’ll typically pay interest only — or the interest may be capitalised (meaning it’s added to your loan rather than paid upfront). Sell Your Property: Once you sell your existing home, the sale proceeds are used to reduce your Peak Debt. End Debt: The remaining balance becomes your End Debt, which then continues as a standard mortgage. An example of a bridging loan. Your current home loan = $200,000 New home = $800,000 Total bridging loan (Peak Debt) = $1,000,000 After selling your home for $600,000, that amount is used to pay down your loan Remaining loan (End Debt) = $400,000 Things to consider. Like any major financial decision, it’s important to understand all the moving parts before you commit. Time pressure: You typically have 6–12 months to sell. If you don’t sell in time, the lender may step in to sell the property and/or charge default interest. This is an extra interest rate that a lender charges when you fail to meet your loan obligations — in this case, not selling your property within the agreed timeframe. Interest costs: If interest is capitalised, it means you're not making repayments during the loan period, so the interest gets added to the loan balance instead of being paid separately. This means your loan grows each month. Making even small repayments can help keep this under control. Equity & serviceability: Lenders will assess how much equity you have and whether you can manage the loan during the bridging period. Loan-to-value ratio: If your End Debt ends up being more than 80% of the new property’s value, you may have to pay Lenders Mortgage Insurance (LMI). Existing loan setup: If your current lender doesn’t offer bridging loans, refinancing may be required — sometimes triggering break fees if your existing loan is fixed. This means you may have to pay a penalty if you end a fixed-rate home loan early (before the agreed term is up). Is a bridging loan right for you? That’s the big question. Bridging finance can offer flexibility and peace of mind, helping you move forward with confidence rather than being held back by uncertain sale timing. But it’s not without risk or cost — so it’s vital to understand the structure, timeframe, and repayment expectations. If you’re considering your next property move and want tailored advice on whether bridging finance suits your situation, talk to the team at Ascent Property Co. or Ascent Accountants. We can also put you in touch with finance brokers to discuss what is best for you.
That work perk might be costing you more than you think… Fringe Benefits Tax (FBT) is charged at a whopping 47% — the same as the top personal tax rate. That means lower salary or fewer benefits. So, while salary packaging can save tax, in many cases it ends up costing you more.
If you’re expecting a higher income this financial year, now is the time to act. We’ve put together 9 Smart Tax Planning Tips that could save you thousands — but they only work before 30 June.
