So what are the symptoms of failing to management your cash flow?
- You’re struggling to pay your bills on time.
- You’re struggling to meet the wages bill each week or month, or to pay the rent.
- You’re forced to pay cash for new stock and supplies due to a poor past credit record.
- Some suppliers are paid earlier than they need to be.
- Customers are slow in paying you for work done or products sold.
- Your struggling to meet your tax requirements; PAYE, GST, or income tax.
- You’re leaving your invoicing until the end of the month to send out, thereby giving customers extra days of free credit.
- You have insufficient reserves to handle unexpected additional costs or expenses.
- Business growth is constrained by the fact that any extra resources needed, have to be paid in advance of extra revenues generated. Places extra pressure on existing funds, resources and reserves.
- Your management style is more reactive than proactive.
- You have too much stock and a need to off load quickly, usually at a discount.
- Your fixed costs are too high which limits your ability to react effectively to a downturn in revenues.
- Your margins and volumes suggest you simply aren’t covering your cost base.
While not exhaustive, the list is compelling enough to suggest a catalogue of faults in your cash and business management approach can quickly accentuate your cash flow problems, especially those of small businesses who generally have shallower pockets.
Sometimes the root of the problem is that systems and processes you currently employ just aren’t equipped for quick and efficient use. They’re time consuming and highly labour intensive, and as a consequence the tasks of recording sales, generating invoices and tracking payments is often left to the last minute.
Small businesses quite often don’t have a cash management approach to limit spend, speed up receipt of cash, or proactively plan for future scenarios. Cash reserves are spread thin and funding options are limited.
So what can be done to overcome these common frailties?
The key to good cash and business management is to identify the symptoms, understand the cause and deal with each problem at its source.
Disciplines such as:
- introducing cash flow forecasting,
- setting up proper terms and conditions of service with customers,
- introducing disciplined credit control processes and procedures,
- and looking at alternative ways to speed up receipt of cash from revenues generated, can all go a long way to keeping the flow of cash in and out of the business in check.
There are also alternatives sources of funds that could be tapped that are outside of the traditional banks, such as debtor financing. These can help businesses manage short term fluctuations in business activity.
If you are experiencing cash flow blues, whether it be as a start-up or as an established business that is growing or consolidating its position in the market, give us a call, we are more than happy to offer our support in stabilising your cash position, and help introduce good cash management disciplines that provide stability and transparency in your business going forward.