“The fact is that one of the earliest lessons I learned in business was that balance sheets and income statements are fiction, cashflow is reality”
– Chris Chocola

Cashflow Management

August 2022

When cash is flowing in a business, everyone is happy. Cash makes the world go round and without it, businesses cannot survive. The most profitable businesses can fail because of poor cashflow – so how do you ensure your business is thriving in managing its’ cashflow?

When businesses begin to grow with momentum, they require working capital to support its’ growth. The term ‘working’ simply means that it’s working hard to afford things like payroll, stock, overheads to buy new assets, all before it hits the bank.

Businesses can quickly unravel when those costs increase and owners are not prepared or not even aware.

The fact that the business is making a profit on paper, and yet cash is tight, is precisely why every business owner needs to understand their cashflow drivers. These are the business processes that affect your cashflow. Processes like how you order stock and pay for it, how you bill for your services and how you make sure you get paid by your customers, just to name a few.

How do I start making improvements in my cashflow management?

The first step is to understand your cashflow better. Successful business owners prepare a month-by-month forecast every year to predict the issues they may face and what their numbers could and should look like, based on previous years. Setting a solid plan for your cashflow is a fast and easy way to begin building accountability around your numbers, as well as finding potential problems before they happen.

Your cashflow forecasts can also be incorporated into your accounting and reporting software to save yourself time and money.

Finding someone that is independent to hold you and your business accountable for the goals that you create is crucial – like your accountant!

What should I look out that could be causing poor cashflow?

There are many things that could be causing poor cashflow in your business, but these are the top 7.

  1. Poor accounts receivable process – resulting in debtor days (the time in between billing and banking) being too high, stifling your cashflow.
  2. Poor accounts receivable process – a quick review of all your suppliers’ terms may identify ways to improve cashflow or just get better Terms of Trade.
  3. Carrying stock for too long – this means full shelves but an empty bank account.
  4. Inappropriate debt / capital structure – perhaps your debt should be consolidated and paid off over a longer term.
  5. High overheads – every business should do a thorough review of its overheads every year.
  6. Gross profit margins are too low – this is another way of saying your variable costs are too high
  7. Sales levels are too low – basically, they can’t support overheads and other cash demands on the business.

What is the next step to take to gain control of cashflow in my business?

Every change begins with a plan!

There are literally hundreds of ways to increase sales – but without a solid plan, and someone to hold you accountable, it’s all just a ‘maybe’.

Talk to our team today about completing a Cashflow Forecast for your business. Together with our accountants, we can identify the potential cause of your cashflow problems, and work together to become accountable in changing the outcome.

You can begin your own Cashflow Improvement Plan TODAY with our FREE downloadable PDF.

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Cash is the life blood of any business. Without cash your business cannot survive. In fact, very profitable businesses can fail because of poor cashflow.

When a business is growing fast, often in start up mode, it needs ‘working capital’ to fund that growth. That’s why it’s called working capital, because that spare capital has to work hard, because the business is having to pay for stock, fund payroll costs and overheads and buy new assets before it gets to bank the cash from selling its goods or services.

The fact that the business is making a profit on paper, and yet cash is tight, is precisely why every business owner needs to understand their cashflow drivers. These are the business processes that affect your cashflow. Processes like how you order stock and pay for it, how you bill for your services and how you make sure you get paid by your customers, just to name a few.

Many of you here today would have been asked to complete a Cashflow Forecast for the bank, often because your overdraft is blowing out. When that happens, preparing a Cashflow Forecast is vital. In fact, every business deserves a Cashflow Forecast. This should be one of the things you do, after you’ve completed your annual one page Business Plan, every year. It’s simply best practice in business.