Sunday 15 April 2012

“We’re making a profit but we’re still short of cash, how?”

Here are a few ideas and a solution........manage your cash flow

You’ve heard the phrase, “cash is king!” Well it’s true, although without profit there will be no cash flow long term.

Accepting you are making profit, you can still run out of cash. Running out of cash can kill a profitable business. How can this happen?

1.      You are owed money by your customers – how much do your customers owe you? Do you know? Do you keep an accurate and up to date record of the money they owe you and chase your debtors as soon as the money is due? Do you invoice promptly?

2.      Do you have a stock of goods or consumables not yet used in the business? Have you bought a lot of stock of goods for future sale or to use in making more things to sell? Do you use a stock of consumables in the business? If so, are they at the right level for what you need?

3.      Does it take you time to complete your service or make your goods for sale? If so, as you are preparing the finished product, are you being paid? Do you get paid in advance or as you go along?

4.      How much do you owe to your suppliers? In the opposite balance to the money that is owed to you, do you owe money to others? If so, do you take full advantage of the credit your supplier gives you? In today’s commercial environment it is acceptable to take up to one months credit but never take more. Do you know your average credit taken from creditors, in numbers of days taken? Is it more that your average debt period in numbers of days? Your aim is to make it higher

5.      Do you manage your cash flow? Do you know how much money you have in the bank every day? Do you forecast forward what cash you will have over the next 3 months and in particular over the next month? If you are in a crisis or are just starting up or growing very fast, this is a vital exercise. A simple spreadsheet will do the trick and explain to you where you could run out of cash and why, and allow you to plan and manage the position. Initially focus on the four areas above and if this doesn’t help, look outside for financial support. A cash flow forecast will give you time to put plans in place

Want help or want to know more?  Contact Jan on 07890 239442,


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