Cashflow – How Are You Managing It?

August 13th, 2010

In the last article I discussed having an awareness and understanding of what costs were impacting on your business. This article looks at ways to manage and control cashflow.

We’ve all heard the sayings, ‘cashflow is like air, it’s not important until you don’t have any – cash is king – cash is the lifeblood of a business – cash is the oil that lubes your business‘ and so on. All sounds good, but what are you doing to manage the cashflow in your business?

Here is a pop quiz that will give you the chance to assess what you’re doing to manage the cashflow in your business. Count how many yes or no’s you answer and compare your answer at the bottom.

Answer Yes / No to these questions

  • I never pay my creditors before they are due
  • I invoice as soon as work is completed
  • I have very clear payment terms for debtors
  • I have a clear written policy for debtor recovery
  • I always follow up debtors if payment is outside their terms
  • I always ask for discount if I pay up front
  • I have a clear sales process that allows me to maximise all potential sales
  • I have considered factoring
  • Before I take drawings I always look at creditors, debtors and profitability
  • I look at my bank balances each day and calculate my cashflow position

So add up the number of yes/no answers you got.

Score = 10 – Excellent, you manage your cashflow well
Score = 7 to 9 – Well done you’re aware of the importance of cashflow in your business
Score = 4 to 6 – If you’re not careful you might just find that you don’t have enough cash
Score = 0 to 3 – Call the ambulance and get help quick!

Other ways to help manage the cashflow in your business

  1. Ask for a payment plan to assist with payment terms with larger creditors
  2. Consider using a business credit card for payments (making sure you can pay when due)
  3. Focus on costs and what you are spending
  4. Get stock levels to a bare minimum and turn it quicker
  5. Ask for a deposit or initial payment if applicable
  6. Keep relationships with clients strong
  7. Don’t be scared to ask for a ‘payment holiday’ or a deferral of a payment
  8. Look at the timing of your receivables and payables
  9. Consider outsourcing to reduce fixed wage costs

Cashflow and profitability are two completely different things and often people judge the success of their business based on how much money is in the bank.    At PlanA Consulting the aim is to help businesses take a broader view, increase profits and be more efficient in the area of implementation which leads to:

– Better cashflow
– Reduction in overheads
– Implementation of systems that allow the business to operate more efficiently

The next article will look at managing customer relationships.

If you think that PlanA Consulting can add some value to your business in these areas then please contact us.

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