Have you ever heard the saying ‘ Cash is King”? Without cash, you can’t do any of the following
- Pay your expenses
- Purchase in new assets
- Payout profits to owners
- Meet your debt repayments
- Invest the development of new products or services
Many business’s fail because they do not have a firm grasp of their cash cycle. They may be profitable, yet do not have the funds in the bank to pay basics such as wages or rent. The key to preventing such a situation is to understand your businesses cash cycle and take steps to manage this process. I call this “ Taking Control of your Cash flow” .
Well run businesses do the following to ensure they enjoy optimum levels of cash flow management.
- Establish a great relationship with your bank : if things are looking tight, you should go to your bank before things get out of hand. Too often the request for extensions of credit come too late. Keep your bank informed & they’ll work with you to provide a solution to your credit situation. The alternative of keeping your head in the sand helps no-one.
- Understand your Cash-Flow & have a cash flow budget: You should understand the impact on your cash flow of basic scenarios such as a drop of 10% in sales or an increase in the time it takes you to be paid. A forecast for the business of your cash flow may predict future shortages in time so that action can be taken.
- Review your Debtors procedures: Are you getting paid for the work you have done on time? Can you offer discounts for early payment. Are you allocating the resources to this very important area of your business.
- Invoice Promptly: Some businesses wait until end of month to invoice. Invoice when the job is done & get paid earlier. Even better, get paid progress payments rather than in arrears
- Review your payables policy: Hold off on paying your creditors until no earlier than the due date. Only pay invoices early when there is a sufficient discount to make it worthwhile.
- Communicate with your suppliers: If you are having trouble making a payment – communicate this with them. You are their customer & they will often do what they can to assist you if you with payment terms if you communicate with them.
- Review your Stock levels: Do you need to carry so much stock? Can you buy smaller amounts more frequently? Can you have stock on consignment?
- Speak to your customers: If you have a strong with your customers, you may be able to go to them and request they bring forward some payments or orders. If you provide them with a top level service that distinguishes you from the market, then many customers will happily assist.
The above steps are just a few strategies towards taking control of your cash flow. What works for you?
If you would like a hand in taking control of your cash flow, then give us a call on 4351 2622.
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