Cash Flow is King!
In today’s tough business environment, access to future capital is not as easy as it used to be. Therefore all businesses need to focus on cash flow management as cash flow is the live blood of a business. Therefore i thought i would share with you some tips that i read about in an article by Melissa Wilkinson in April’s Management Today magazine. These tips are not only timely, but pertinent to all companies – espcially those that are doing it a little tough.
Here are Melissa’s top 10 tips for managing the cash flow of a business.
- Pay attention to invoices – think about it. You run a company and you look for any reason not to pay someone elses bill on time. Therefore why wouldnt they be thinking the same thing. Make sure all invoices are accurate the first time hey are sent out.
- Stay close to your customers – perhaps a better way to put this is to chase outstanding invoices hard. Customers will find a way not to pay them and it is important for your business that they do. Dont be afraid to ask for money – i am sure your customers are doing the same with their customers!
- Outsource debt collecting – the use of an external party to do the debt collection is a good move. You can only chase people so hard however professional debt collectors (and i dont mean those with baseball bats) are able to focus on collecting the debts. Make sure that the service and ethics of the debt collectors you engage are aligned with your brand.
- Keep stock levels low- this should be an ongoing requirement for those that do carry stock however it is more important today than ever before. Think about stock on your shelves as the same as cash in the bank – but far less tradeable. Managing stock levels is now a critical skill.
- Scrutinise new clients – this is a very timely tip. Just because someone wants to use your services doesnt mean they will pay. From time to time we have this problem and it is important that you check out your customers closely. Even ask for payment in advance.
- Pay slowly – this is the other side of the coin. Utilise the maximum payment terms available to you so that you can keep dollars in your account. Remember, others are taking the same approach with you. Dont abuse the relationship otherwise they will stop serving you – a far less exciting outcome!
- Sell under utilised assets – this is a great tip. Around the business there are assets that are just not being utilised 100%. It therefore makes sense to sell these off. The only problem is that they are unlikely to get a great price in today’s economy. Still cash in the bank is worth more than an asset that sits around.
- Make sure your financing is appropriate - when people are paying slowly and the bills are mounting up, it is important to make sure that you have enough funding. You cant delay paying employees so having access to enough working capital is very important. Failure to do this will result in you having to raise money in a very tough environment.
- Link performance to cash flow - this is very important. People throughout the business should have their bonuses and performance measurement tied in some way to the cash flow of the business.
- Prepare a cash flow budget – most companies prepare a P&L based on accrual accounting. This is great when things are good and you are more interested in the high level performance of the business. However as cash is king, the preparation and constant monitoring of a cash flow budget that truly predicts the movement of cash is critical. This will act as an early warning mechanism for managment if cash flow is not going as expect.
Following these astute set of observations by Melissa Wilkinson will help any business weather the current economic storm.
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