Joan has to pay her electricity bill this week. Her bank account is almost empty, her credit cards are nearly at the limit, and her salary isn’t due until next week. Simply put, Joan has a cashflow problem. We’ve recently heard about people on the poverty line who take out payday loans to deal with situations like this and then get deeper and deeper into debt.
In much the same way that Joan has a problem, your business may face financial difficulties if you don’t manage the cash flow well.
It may not sound very easy, but business cashflow is simply the money entering and leaving a business. And it’s one of the fundamentals of business success.
Good cashflow management:
- Assists with the bank and other business funding need: not only do you know what’s happening in your business, but you can also communicate this to financial and other stakeholders, providing clarity and inspiring confidence.
- Avoids the risk of late payment penalties and interest claims from suppliers. Some suppliers offer attractive discounts for early payments that you can take advantage of if you keep up with your cash flow.
- It improves communication and relationships with your financiers and suppliers, allowing payment plans to be set up if you need extra time.
- It gives you a clear understanding of business cash and liquidity, allowing for better decision-making and quick actions. It also puts you in an excellent position to review and adjust these actions if the results are unexpected.
- It helps you understand the critical drivers in your business. Cash coming into your business has a definite function in helping your business operate.
- It enables you to predict and plan for large cash outflows, such as that giant VAT or supplier bill that happens infrequently.
- Allows you to monitor actual cashflow against forecasts, facilitating pre-emptive action at the first sign of trouble. No one could have predicted the economic upheaval of the last few years, but having control of your cashflow puts you streets ahead of most businesses.
- Improves business processes that maximise profit and business value. Never forget that a good credit score reflects well on your business.
- Smooths the ups and downs caused by unexpected internal or external events. You can’t control everything, particularly the external aspects of business, but good cashflow management will mean you can cope when things don’t go according to plan. Delays from suppliers, for example, may force you to move to a more expensive alternative; although not ideal, this won’t ruin the business if you control your cashflow.
- Provides peace of mind that your business cashflow needs are known and adequately funded. Simply sleeping at night makes managing the business much more straightforward.
Cashflow underpins the success of your business. As a business owner, getting to grips with cashflow management is one of the most important things you can do to ensure future success.
I’d love to have a chat about how you can be helped you take control of your cashflow.
Why not give Julia a ring? 07855275099 or 01926 298829