A healthy cash flow is a healthy business
There are two main reasons why businesses fail – lack of customers and lack of cash flow.
A successful business owner understands that Cash-is-King. However, few have the correct processes in place to manage it properly.
To use an analogy, cash is the blood of the business. A consistent flow of cash through a company is what keeps the vital parts running. Without cash, everything stops.
It’s no wonder that most business owners get a little anxious when you mention cash flow. And with the impact Covid-19 has had, the stress is more evident now than ever.
So, what can you do to help improve cash flow in your business? Firstly, let’s get our head around its importance.
Cash flow and money management can lead to anxiety generally caused by the many inherent unknowns of running a business. Ensuring you have a sufficient cash flow management system or process will make a huge difference. It will help you understand your cash flow ins and outs and alleviate some of the anxiety you are experiencing.
If you think about what your accountant does, you probably think it’s ‘tax’. But it’s a lot more than that.
Even if you have a good relationship with your accountant and you’ve been working with them for some time, it might seem to be a rather ‘transactional encounter’. However, accountants are generally well placed to provide value and added advice to your business. Especially when it comes to improving cash flow management.
The reality is, an accountant deals with many clients across many industries to solve many issues. This is where an accountant will have the experience and understanding of what cash flow problems you will likely face.
There’s also a good chance that they have the tools at their disposal to find solutions to these problems and advise on the best way forward.
You might think, ‘My business is profitable; why would I need help understanding my cash flow?’.
The sad reality is that plenty of profitable companies have gone out of business because they don’t have the cash available to pay their debts.
Here’s an exercise that may help you better understand your debts, cash flow and financial health.
Next time you sit down to do the sums, ask yourself the following questions.
- What money do you have coming in over the next three months?
- What expenses do you have going out in the next three months?
- How much GST do you have to pay?
- How much super do you have to pay, and when is it due?
- When are those motor vehicle payments due?
- Can you afford that new piece of equipment/service to expand your business?
- Can you buy it with cash, or would financing be the better option?
- If your ability to earn income stops tomorrow, how long would your cash flow last?
Understanding these questions and knowing the answers is critical to making good business decisions. However, if you’re finding it’s all a little too much, obtaining professional advice is as much a stress relief, as it is an intelligent business decision.
At Finspective, we offer cash flow reviews and ongoing planning for a little as $500 per month. If you are interested in learning more about what I do, click this link.
I’d be interested to hear how your business overcomes or struggles with cash flow problems. You can book a free 15-minute consultation where we can discuss your circumstances, answer some questions and share some advice on your next move.
The information (including taxation) is general in nature and may not be relevant to your individual circumstances. You should refrain from doing anything in reliance on this information without first obtaining suitable professional advice.
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