Managing Cash Flow
Date: 19/04/2007
Managing Cash Flow
85% of all businesses that go broke did so because they didn’t manage their finances properly – and usually this means they didn’t manage their Cash Flow properly. If you have more money coming in than money going out – HEAVEN!
If you have more bills coming in than money coming in – HELL! The tool for controlling which direction you are heading is your Cash Flow.
Accept Personal Responsibility For Your Company’s Cash Flow
Don’t just leave it to your accountant! Take a basic accounting course so that you can read financial statements.
Monitor Your Financial Situation Constantly
You should always know what your daily sales are and have a rough idea of what is going to come in over the next few weeks. In addition, you must always make yourself aware of what expenses are going out in comparison to what sales are coming in. When things get tight, don’t let anyone on your team buy anything without your permission.
Personally Be Involved In Forecasting Sales And Budgeting Expenses
As the business owner, you must get yourself involved in estimating sales and expenses for the quarter and then modify them as the quarter proceeds. Leaving it to others can be (and often is) fatal. When using spreadsheets, it is simple nowadays to produce several scenarios. You should at least calculate the worst, best and most likely scenarios.
Adjust Your Marketing Strategies According To Cash Flow
The whole point of monitoring your Cash Flow is to catch small problems before they turn into major headaches. If sales are down on budgets, start looking for answers. Are you aiming at the wrong market? Was the advertising effective enough? What do we need to do to get sales on track?
Set Up A Cash Reserve
If you do this, you have somewhere to go if the cash suddenly dries up.
Organise Backup Finances
Communicate with your bank manager regularly. He/she can possibly organise invoice factoring, lines of credit, overdrafts, or even find an equity partner. The trick is to have things in place well before you need them.
Lease Instead Of Purchase
Leasing costs more in the long run but it also means a lot less cash up front.
Control Expenses
You have to become very strict with expenses. Constantly look what you are paying for. See where you can trim the fat. Try to find cheaper suppliers. Don’t put on extra employees unless they can bring more into your business than what you are paying them. Don’t overstock. Remember, every time you write a cheque, you have to have at least an equal amount coming into the company at the same time.
Speed up Receivables (The Money people owe you)
You can maximise your cash flow by trying to get paid quicker. Never get slack with people who owe you money. Set up your terms of trade and stick to them. Consider asking for part payment in advance. Consider sending out reminders. Don’t give credit unless they prove their worthiness.
Slow Down Your Payments
Although you should never fall into arrears with your suppliers (for obvious reasons) you should stretch out payments for as long as legally possible and never pay bills earlier than the creditors terms of trade unless there are substantial benefits, such as a large discount for earlier payment. Even then, a large discount received in exchange for a large hole in your cash flow may not, in fact, be a benefit
