It’s no secret that cash flow is important when it comes to running a business – the difficulty is that projecting your cash flow needs involves you predicting the unknown.

Why cash vanishes in your business

We typically use the accruals basis of accounting with recognises revenue and expenses when they are incurred – not necessarily when you receive or pay the cash.  As your business grows you have more and more transactions which dilutes the visibility of cash in the Profit and Loss – meaning your cash disappears.

Want to work out where your cash is disappearing – get out Cash Control e-book

What can you do when your cash stops flowing?

  1. Review your budget and cash flow statement Your first step is understanding where your business is at.  Invest time and energy in getting everything up to date.  Most software will contain a cash flow statement report which will help you see where your cash has gone.
  2. How much cash is tied up in Accounts Receivable? Get a clear picture and formulate a plan to collect what is owed to you.  Make sure you’re billing your customers in a timely fashion.
  3. Can you call in any favours in your Accounts Payable? Review your payment terms with your suppliers – don’t be hesitant to negotiate longer payment terms, especially if you’ve been a long-term customer.  Put a plan in place for how and when you will pay older accounts – get on the front foot to keep them on side.
  4. Review your overheads Where can you make some savings?  Can you be more efficient or get more mileage out of some of your expenses?  If you’ve got dead office space, could you rent this out to generate more income?
  5. Are your assets in storage? Assets on your balance sheet should be working to generate income for your business.  If you’ve got any that aren’t being used or are ‘in storage’ now is the time to convert them into cash.
  6. Know your profitability per product / service Have your margins been squeezed lately such that you need to review your prices?  Do you know which services or products deliver the most profit into your business?  Can you restructure how you deliver services to bring cash in faster (think deposits, monthly payments).

Wanting to confidently control your cash flow – get our e-book and worksheet to get started.

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