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Cash Rich: Getting Your Cashflow Under Control

Posted 2 months ago in BUSINESS PLANNING, LEADERSHIP

In business, if ‘Cash is King’ then cashflow is the blood that keeps your business alive. Cash is one of the most critical components of success for a small or mid-sized business. Without cash, profits are meaningless.

It’s an unfortunate story that so many profitable businesses (on paper) fail due to a shortage of cash – the cash going out doesn’t compare to the cash coming in. Business owners who don’t practice good cash management may not be able to make the investments needed to compete, or they may have to pay more to borrow money to function.

New Zealand research also confirms the cashflow challenges for our business owners with 92% of small to medium enterprise owners/managers frequently stress about cashflow – 80% say cashflow affects their home life and 52% have taken a pay cut to keep their business afloat.

So, what is cashflow?

The Cashflow Cycle

To get a handle on cashflow, we walk our clients through understanding the cashflow cycle which includes:

  • Stock is purchased, creditor paid in 45 days
  • Stock takes 60 days to sell
  • Debtor pays 60 days later
  • Cash cycle is 60 + 60 – 45 = 75 days – your business has to fund this shortfall!

Your cash cycle can be reduced by collecting debt faster, selling stock more quickly and negotiating longer terms with creditors.

Cashflow Management

Achieving a positive cashflow does not come by chance. You have to work at it. You need to analyse and manage your cashflow to more effectively control the inflow and outflow of cash. We recommend undertaking cashflow analysis to make sure you have enough cash each month to cover your obligations in the coming month. Most accounting software packages geared to SMEs can create a cashflow statement for your business.

We also offer a cashflow budgeting and forecasting service for those looking for that extra level of support.

How to Improve Cash Flow

Most business owners see growth as the solution to a cash-flow problem. That’s why they often achieve their goal of growing the business only to find they have increased their cash-flow problems in the process. Plan for growth and the related cash outlays in advance, so they do not come as a surprise.

Here’s a few actions you can take to better manage your cashflow:

  • Have a Debtors Collection System and a Credit Policy and adhere to it
    • Communicate, start early, be persistent
    • Qualify your client/customer. 
    • Get credit references, personal guarantees, set credit limits, get cash on delivery
  • Have a Stock Control System
    • Know current buying trends, know what’s selling and what isn’t
    • Manage obsolescence
  • Do a personal budget and stick to monthly drawings amount
  • Finance asset purchases


Getting Control of Your Cash Flow

One way to keep your cashflow situation under control is by tracking your cashflow results every month to determine if your management is creating a positive or negative cashflow. This also helps you get better and better at creating cashflow projections you can rely on as you make business decisions about expanding your business and taking care of your existing bills.

How Can We Help?

Join our quality ‘Planning for Success’ workshops which are full day sessions for 5hrs per session. Subscription to these workshops is $195 +gst/mth for 12 months.

We also offer Complimentary Proactive Review Meetings at no charge. This is a great way to identify the priorities for your business and where you will get the most benefit from our support.

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