Bradd Morelli.
As a partner at Jirsch Sutherland, a specialist insolvency, forensic accounting and turnaround business, Bradd Morelli has been the liquidator of a large number of SPVs where the Producer Offset has been successfully claimed.
Below, he outlines the key steps to ensure smart cash flow for those in the creative industries.
Lumpy cash flow is the cycle of life for many people in the creative industries. Large invoices paid at irregular intervals can often make you feel broke one day and rich the next. But a little planning can smooth out your cash flow to create certainty in your financial life.
Payday
In your bank is a lovely big deposit. What now? Buy a car? Pay off debts? Treat yourself to a holiday?
You could do that or you could speak to your accountant or financial advisor. Their business is managing money and cash flow and their support to get you the most from your income will pay dividends. Accountants and financial advisors work with all types of people to develop and implement plans to help you succeed financially. They can also provide sound advice when you need to make decisions about investing, setting financial goals, sourcing finance and expanding your business.
So first speak with your accountant or financial advisor about how they can work with you to prepare for the cash flow peaks and troughs.
Know your financial starting point
1. Figure out your likely income over the next few months.
You have just earned a lump sum, but when is the next project and when will it pay? Will it last until the next payday or do you have an alternate income stream to get through the dry period?
2. Know what your costs are to live each month.
How much are your costs for rent, food, insurance, clothing, education, utilities etc? Work out the minimum you need, and then add some buffer as a comfort factor.
3. How many months do you need to support yourself?
Set aside money to pay yourself a regular monthly salary.
4. Set up a monthly payment plan.
Speak to someone who can help set up a payment plan to pay yourself automatically like an employee. Your accountant or financial adviser can also help you set aside money for taxes, GST or BAS if they apply. Alternatively, you could transfer your money into an online high interest savings account and pay yourself a monthly ‘salary’. Choose one with a notice period to access the funds to avoid impulsive spending.
5. Negotiate a better deal.
Lump sums make cash flow hard. Negotiate your contract to split up invoice payments with partial pre-payments, staged payments or draw-downs against milestones.
6. Pay your bills and creditors thoughtfully.
Bills have credit terms. Don’t pay a 30-day account on day one. Use the credit terms to smooth out your own cash flow by paying only when you have to. Perhaps use a credit card to effectively gain another 30 days to pay.
7. Have an emergency fund.
Peaks and troughs are expected, but what about if you need to take time off or are unable to work for a period of time? Having an emergency fund of at least three months living costs in a separate account is a great way to ensure you are always prepared and will help you sleep better at night.
8. Get professional advice.
Get your accountant or financial advisor to help you action your plan.
What to do if you run out of cash?
If the job you were relying on falls through, how will you survive before crunch time? Sometimes the best laid plans can go awry making it necessary to plan in advance for all situations.
Seek professional advice on your options at the earliest opportunity if the worst does happen and you run out of cash, particularly if you need to consider voluntary administration, liquidation, bankruptcy, or a personal insolvency agreement.