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Cash is King

Posted by Kirsten Lowis on 2 July 2018
Cash is King

Yes "Profit" is nice but nothing matters more than "Cash Flow"

In business it would be much better to adopt the old saying of "Nothing matters more than cash." Without cash flow, failure is not too far away.

Over 20 years of working in the finance industry, the one constant factor attributing to small business failure was cash flow management. Can you believe that a staggering 90% of small business failures are due to more money flowing out the door than in? That's an epidemic! And that statistic doesn't seem to be improving.

According to a recent survey conducted by Dun & Bradstreet, 68% of firms indicated that cash flow will be an issue for operations in the June Quarter of 2013. How does your business stack up?

As you read this I can hear you say, I don't have to worry we make plenty of profit. But, it's critically important for you to understand is that many profitable businesses go broke because they didn't have enough cash flow to support their business in the short term.

Now, there's a big difference between profit and cash flow. Just because your business is making a profit, doesn't mean there is surplus funds to pay your suppliers, your team (or yourself for that matter). Your cash could be tied up in other areas of your business such as stock.

By monitoring your cash flow each month, you can estimate whether you have sufficient cash in the bank to pay your bills and prevent you from being one of the statistics. Create a cash flow budget simply outlines the amount of money that you expect to flow in and out of your business over a period of time generally 12 months. This report should be based on a series of assumptions about how your business has performed in the past, and what you expect in the future.

If you are starting a business from scratch and do not have previous records, it is important to back up your cash flow assumptions with market requirements, planned fixed expenses and information on similar types of business. Also, it's really important to research all critical factors in calculating your cash position.

Once you have completed your cash flow budget, you need to use it. It's a living document, so feed it and let it purge what's not needed. This report is designed to track your projections against actual receipts and expenses as they occur and will help you to keep your finger on the pulse, and enable you to manage expenses and income effectively and plan for any unexpected issues, well before they occur.

If you look at your bank balance and you don't see something that looks more like mother Hubbard's cupboard, than a fat and bulging piggy, then it's time to go on a cash hunt. Stock and debtors are the usual cash gobbling suspects, so start the rampage in these areas.

Good cash management is the key to business success, and will see you with a cash flow strong, profitable and sustainable business for years to come.

Then you might like to ask yourself some of these questions in the box above.

If having a Cash-Flow-strong, profitable and sustainable enterprise for years to come is a priority for you and your business; good cash management is the key to success.

How well do you know Cash Flow?

  1. Do you know the difference between Profit and Cash flow?
  2. Do you have a cash flow budget and is it up to date?
  3. How do you manage your stock and do you have too much stock?
  4. Do you need an overdraft facility to smooth out your cash flow?
  5. Do you make collecting accounts a priority or are you too busy?
  6. Do you have a clear and effective debt collection system in place?
  7. Are there any areas of your business that are not making money

First published in Zoom in Business Magazine ©2016


Kirsten LowisAuthor:Kirsten Lowis
About: As the Founding Director of Zoom in Business - a subscription-based coaching program and magazine, NQ Business Sales - a business sales firm based in North Queensland, and Bizrich - a business valuation firm, Kirsten has learnt from the trenches and brings a wealth of personal and professional experience and knowledge to our members. With over 10 years as a franchisee, retailer and start-up business owner, Kirsten has worked closely with fellow coaches, hundreds of clients and the best facilitators in Australia who have run their own business or have experience in running a business and teams. Kirsten’s extensive knowledge and experience as a Registered Business Valuer and Licenced Business Broker helps our members improve awareness, understanding and confidence in buying, growing, valuing and selling their business, while connecting them with local and international business experts to create a capable and dynamic business community.
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