great Liverpool manager of the 1960’s/70’s Bill
Shankly once said ‘Football isn't a
matter of life or death, it's much more important than that‘. In my experience this is maybe a slight
exaggeration when it comes to sport but not when you consider that Cash is the oxygen that enables a business
to survive and prosper and is the primary indicator of business health. While a
business can survive for a short time without sales or profits, without cash it
will perish. For this reason the inflow and outflow of cash needs careful
monitoring and management.
As we are all only too aware,
the outflow part of cash flow is never a problem; money will always run out of
your business or pocket easily. Keeping the money coming in on a regular,
sustained basis is the tricky part of cash flow management.
One of the key factors in
weathering any storm is knowing that it is coming and what direction it's moving.
To do this you must keep an eye on the key performance indicators for your
business and be aware of changing economic conditions. It is essential that as
a part of your business plan you must prepare cash flow projections for the next year.
you pay your normal operating costs and expenses for at least three months from
current cash? If so, that's good - and six months is even better. But if your
cash balance cannot sustain you for three or more months, then you could be in
serious trouble. Part of the problem may be poor management of cash flow. If unforeseen
circumstances happened and your predicted cash flow dropped 25%, what could you
Many business owners /leaders
mistakenly believe that a balanced budget and managing costs alone will ensure
the financial health of an organization. An organization can still have a
balanced budget, which indicates that it will break even or make a profit for
the coming year, but without careful cashflow management it could still go out
of business or have its reputation damaged if bills are not paid on time or,
worse, if a payroll is missed.
Whether it is a multi-billion dollar empire, such as Apple Inc,
or the small store on the street corner, cash is the lifeblood of the business.
Tips to improve Cashflow
order for a business to consistently meet its financial commitments it will
need to properly manage its cash flow. Here are a few suggestions that we use
for our own business and which we advise our clients on simple ways to save
costs and improve cash flow.
1. Know what your business’s burn rate is, this is
the rate at which the business is consuming cash on a monthly
2. Identify the timing of major cash outflows within
the business i.e. installment arrangements, annual revenue
payment, capital repayments, payment plans to major suppliers etc.
3. Prepare cashflow projections which are reviewed and
assessed on a monthly basis. Monitor actual cashflow
performance against projections and ensure all financial information is kept up to date to
allow for quick informed decisions to be made.
4. Have an efficient and effective credit control
policy. Ensure your customers are aware of your credit
policy and that you operate it so that you get the cash in.
5. Free up cash by maintaining an appropriate level
6. Preserve cash by maximizing credit terms from
7. Beware of short-term funding solutions which may
cause high interest / funding costs i.e invoice
8. Seek financial advice early if you anticipate
pressure on the business cashflow – don’t stick your head in
9. Approach your bank manager, before they approach
you. Speak with your financial advisor, if cashflow
problems are foreseen, take positive steps to manage the situation.
10. Increase payment options. Encourage customers to pay by banking
debit. Offer a Credit card payment facility. Negotiate finance terms if you
know the customer
cannot pay your full debt in one payment.
11. Generate more
sales - It is
much easier to increase your sales from existing customers than it is to find new customers. Make your clients aware of the full
range of services / products that you
offer. The last thing you want is a customer telling you “I didn’t know you did
12. Embrace Outsourcing- outsourcing
non-core activities (payroll, accounting, IT, sales and marketing, delivery etc) will help the
business save costs in areas of salaries, rent, IT, employment risks and training costs
helping to boost its cash flow.
really is 'The King'
Even during the boom times cash was king. During the last 24
months we have experienced a period of significant falls in incomes and profits
and the access to cheap cash that was in the market has all but dried up. It is
essential for all business owners who wish to survive and thrive in the future
that they get their business fighting fit and set out realistic goals for the
next 3 to 5 years of where they are going and how they will get there.
Many business people are taking a very short term view at
the moment. “If I can make it through the next 6 months, I will be OK”. While
it is important to manage the day to day activity of any business it is also
vital that you stay focused on your longer term plans for the business. If you
don’t, when we do come out of this recession, you won’t be ready to take
advantage of the upturn.
To view Marks bio please click here.