“Cash is King” but managing cashflow is stressful.
For all organisations, cashflow is the lifeblood that keeps the business running. As soon as cashflow stalls or runs out, business operations can scream to a halt that creates enormous amounts of stress for business operators.
Knowing where your cash has gone and being able to manage cashflow can eliminate stress and anxiety for your suppliers, employees and most importantly, yourself.
WHERE IS YOUR CASH HIDING?
How much money is owed to you from debtors? How many working days overdue are your unpaid sales invoices?
Ensure you have an adequate credit policy for customers and robust internal procedures to enforce it.
Unfortunately, some customers only pay when they are asked to so actively following up overdue accounts is critical to ensure a healthy cashflow.
Stock on hand is money. How much stock are you holding and how many days does it take you to sell and convert to cash? Are you holding stock that needs to be written off?
Order smaller amounts of stock more frequently to avoid having to make large payments to suppliers. Ensure you have strategies to manage aging stock to ensure you have healthy stock turnover and can avoid write offs.
Cash can be sucked out of a business to pay liabilities in the balance sheet that does not affect the bottom line, but it will drastically impact your cashflow and operations.
You can manage the payments of large liabilities such as GST and other taxes by negotiating repayment plans.
Are owners taking out substantial drawings and wages that are drastically affecting cashflow? Business owners bear all of the risks and therefore have the right to reap all of the rewards of running a business. However, it is also their responsibility that the level of drawings does not adversely affect the health of the cashflow.
It’s important to invest in your business with buying capital equipment that will improve your operations, such as computer equipment and machinery. However, the cash outlay required to make these investments can be substantial for any business.
Investigate options to purchase capital under finance that will allow the payment to be spread over many years.
A profitable business is more likely to have better cashflow than an unprofitable business.
If your business is not making a profit then you need to determine if you are having a bad month, a bad year or have a bad business model.
HOW CAN YOU IMPROVE YOUR CASHFLOW?
Sometimes unforeseen events occur that cause your cashflow to stall, such as a client going insolvent and not paying their sales invoices. In other instances, cash balances are slowly drained until there are no reserves or working capital.
Don’t panic! In most cases it is possible to formulate a plan to ease anxiety and work your way out
Stay on top of your debtors
Buy little and often and communicate with suppliers
Do not stop paying super! This can seem like an easy short-term fix, but the consequences to your staff, reputation and having to explain to the ATO are not worth it.
Proper Prior Planning Prevents Poor Performance... and stalling cashflow!
Budgets and cashflow forecasts are essential tools for cashflow management. These documents allow you to forecast how much cash you will have, or need at any point in the future.
You can monitor your performance to ensure you are on track to meet your cash outflow obligations before the due dates hit.
Ask Precision how to improve your cashflow and give you the control to make proactive decisions to increase your cash reserves.