How To Develop A Basic Cash Flow Strategy For Small Business
- Middle class Australia, where the poodles run free!
I like small business. I like the people that work in it. They’re real. Most corporations are sheltered workshops for the middle classes.
The people that work in them use a lot of hair product, gad about in 4-wheel drives during the week and talk about global warming, private school fees and their miniature schnauzers whilst having food thrown at them at Teppinyaki joints on the weekends. But small business… it’s the real deal.
Having said this, corporations have entire departments devoted to managing finance. Most SMEs on the other hand don’t really know how cash flow works and its importance in keeping their operation afloat.
Too often, many small business owners focus on their business’ profit and loss statement alone. As Smart Company’s Michael McKerlie contends this can be a “potentially fatal mistake because healthy profits can mask an impending cashflow crisis.”
To cut to the chase, P&L statements don’t usually contain the information required to make an adequate cashflow projection. For that, you’re going to need a structured balance sheet that includes all the influencing factors including debts, interest payments, inventory and so on.
There are some cashflow software tools around, but you can also set up your own program in Excel. If you’re not familiar with Excel software, ask your accountant for help to set it up properly initially or consult your 14 year old nephew Bernard, because kids can get a grip on this sorta stuff awful fast and let’s face it, they’re cheap.
More seriously, if you’re already visiting your accountant for other tax related matters, then you can get a cashflow budget prepared at the same time.
If cash is really tight, you might need to move to weekly projections, and decide which invoices you’ll pay and whom you need to get payment from as soon as possible. Be careful who you delay paying. I recently wrote about credit reporting agencies. You can end up with problems getting a loan or have difficulty with suppliers if your profile is bad.
Rapid growth sounds good but, ironically, too much of this good thing can bring on a cash crunch – which takes many business owners by surprise. A sudden spurt in sales is often accompanied by a run down in stock in-hand and debtors not being tracked or followed up when they go overdue.
Get finance products working to your benefit. Overdrafts, premium funding, lease facilities and cashflow funding products can all be excellent tools to help match a business’ cash supply with planned outlays.
