Managing your cashflow

  1. Some considerations
  2. 20 questions to ask yourself

Some considerations

Cashflow is the lifeblood of a business. Maintaining a healthy cashflow should be a top priority for the business owner.

Some considerations for managing cashflow effectively include:

Credit Policy:

Be sure to have a consistent and firm policy about when and how you will extend credit. Remember work done but not invoiced or not paid is effectively an interest free loan to the customer.

Continually monitor the age of the accounts receivable. That is, the time taken for debtors to pay their accounts. Is the period of payment expanding?

Collecting debts can be a painful experience but having good standards in place and making sure they are well communicated and enforced will increase the health of your business.

Use this quick credit management health check to see whether credit control is causing you problems with cashflow.

Taxation Payments:

Most businesses will need to submit quarterly Business Activity Statements (BAS). Keep track of your GST liabilities and ensure you are reserving appropriately.

Inventory Management

Strike the right balance between maintaining supplies while not putting excessive amounts of cash into unsold stock:

In other words, don’t be seduced by discounts, buy what you need when you need it.

Cashflow Budgeting

The cash flow budget shows cash in and cash out over the trading period. Keeping an up to date cashflow budget is an essential tool in managing your business well.

Key elements to be considered when developing cash flow budgets:

The current cash you have on hand.

The cash you are likely to receive from cash sales in this trading period (month) and from credit sales from previous trading periods. This is where you need to examine if you are getting paid on time.

The cash you need to pay out in this trading period and whether your cash left on hand is sufficient.

20 questions to ask yourself about your cashflow

  1. Do I have adequate cash flow to carry me through the next trading period?
  2. What is the turnover rate for my inventory?
  3. How do I know whether my inventory turnover rate is as good as it should be?
  4. What is the current ratio for my business?
  5. What proportion of my credit accounts are outstanding 30, 60, and 90 days or more?
  6. Am I extending too much credit to my customers?
  7. What proportion of my sales revenue is taken up with administration expenses?
  8. How does my COGS compare with similar businesses in the industry?
  9. How does my Gross Profit compare with similar businesses in the industry?
  10. Am I too heavily geared through debt financing?
  11. Which product line is my best seller?
  12. Which product(s) are unprofitable?
  13. Do I have any ‘key account customers’ I should be looking after?
  14. What is my Net Profit ratio?
  15. What is the return on my investment in the business?
  16. Am I getting an adequate return to allow me to continue in business?
  17. Am I financing my business by delaying creditors?
  18. Do I need to expand my capital base?
  19. Do I need software to adequately analyse my accounts?
  20. Will I survive the year?