Cash flow improvements requirements.

Cash flow improvements means adequate working capital.

Your car won’t run without petrol, nor will your business run without cash flow.

The life blood of any business or organisation is cash flow. Running out of cash is like running out of petrol, it doesn’t matter how good the car is, there’s no progress, you will fail to proceed. Your ability to generate customers and profit is essential for business success. But, your ability to manage cash flow improvements can make or break a business. 

One answer is to always focus on creating revenue before you focus on spending.

Cash flow is an important part of the language of business. It is perhaps the number one problem most businesses have. Managers can be brought to the brink, by cash flow problems. Many say stress about money is adversely affecting their health and relationships. There are too many businesses being run on a wing and a prayer and a lot of hot air. You need to know how much petrol you have in the tank to get you to where you want to go.

Often when there is a cash crisis, people go into a huddle. Sometimes they call in the experts and try to work out what to do. Much time is expended, time that if it had been applied to making some extra sales the problem could have been fixed. Understanding cash flow is one important element of becoming financially savvy.

Cash flow improvement plans and budgets are critical.

Cash flow is the single most important concept in business. If cash-flows are budgeted correctly, funds should be available to meet expenses as they fall due for payment. Some don’t use a gauge or a budget as they find it hard to estimate the factors impacting cash flow improvements, or they find it difficult to understand the future as it keeps changing. The important thing is to just start doing a plan and budget, with help if necessary. Accuracy improves with knowledge, practice and experience.

If cash flows are budgeted correctly, funds should be available to meet expenses as they fall due for payment. Some don’t use a budget as they find it hard to estimate the factors impacting cash flow improvements, or they find it difficult to understand the future as it continues to change. The important thing is to just start doing a plan and budget, with help if necessary. Accuracy improves with knowledge, practice and experience.

Cash is king when it comes to the financial management of a growing company. The lag between the time you have to pay your suppliers and employees and the time you collect from your customers is the problem. The solution is cash flow management. At its simplest, cash flow management means delaying outlays of cash as long as possible while encouraging anyone who owes you money to pay it as quickly as possible.

Sometimes it pays to ignore your competitors 

During changing economic times people tend to stop spending. There are fewer people  looking to buy while others are looking to buy less. At times like this, it is important o look at expanding your market size. Most of your competitors will be curtailing their spending on marketing and sales and this will give them less of the available market. This could cause them to start discounting to try and increase revenue by increasing their sales volume.

This is bad for them and good for you. You need to be spending more on very targeted marketing activities, but without discounting and by placing more emphasis on personal service and the customer experience. Remember that there are always people making money during an economic downturn. If you are unsure how to proceed and adjust your strategies, seek help.  

Survival often depends on a positive cash flow improvements

All businesses need a steady and reliable cash flow improvements to survive and grow, whether to pay wages, tax, suppliers, fulfil orders, purchase more stock or new equipment or simply take advantage of new opportunities.

Slow or unreliable cash flow can restrict your growth. According to Dunn and Bradstreet, “90% of small business failures are caused by poor cash flow”. Put simply, not enough cash is coming in the door and too much is going out. Getting paid on time and managing your outgoings is critical to business success. The aim is to make the business work and in order to be successful, the cash flow must be positive and strong. Cash is King.

By building a solid framework where all the functions of the business are aligned, will do much to improve your cash-flow,  You might also want to revisit the foundations of your business to ensure it is maximising cash flow improvements through taxation and other issues, There are many ways to improve your cash flow apart from growth and profits, which could in fact adversely affect your cash flow. Many businesses go broke when they are expanding too fast without adequate working capital to support the cash flow.

You should aim to improve the speed with which you turn materials and supplies into products, inventory into receivables, and receivables into cash. Debtors and inventory are commonly known as the ‘cash traps’ and for good reason. Without good management control, both debtors and inventory can quickly be out of control and soak up all your cash.

Improving receivables (Debtors)

If you are paid for sales before you made them, you would never have a cash flow problem. Unfortunately, that doesn’t usually happen, but you can still improve your cash flow by managing your debtors.  Here are specific techniques for doing this:

  • Issue invoices promptly.
  • Ask for payment on completion of the work.
  • Offer discounts to customers who pay their bills on time.
  • Require credit checks on all new non-cash paying customers.
  • Ask customers to make deposit payments at the time orders are taken.
  • Have a debtors ageing system in your accounting system.
  • Track accounts receivable to identify and avoid slow-paying customers.
  • Follow up immediately if payments are slow.
  • Cash on delivery (COD.) is an alternative to refusing to do business with slow-paying customers.
  • Some good customers will often pay in advance of you ordering the goods. Particularly if they know and trust you.

Managing inventory

When you’re starting from scratch, with may only have a vague system for tracking your inventory. You may not have part numbers, named locations, or the most basic attributes of a simple inventory system. Most good accounting packages include a system for managing your inventory and suppliers while providing cash flow improvements. They can provide you with very useful management reports. Here are some suggestions to help you manage your inventory:

  • Organise more just-in-time deliveries.
  • Have an inventory ageing system’.
  • Set parameters on your inventor carry. and control stock turns.
  • Dispose of dead or slow moving stock for whatever you can get.
  • Dispose of unwanted or underused plant and equipment.
  • Manage work in progress (WIP).
  • Manage seasonal fluctuations.
  • Measure you inventory shrinkage. Particularly inventory that can deteriorate, vaporise or be ‘shop-lifted’.
  • Conduct regular stock takes if theft is a problem.

Managing payables (Creditors)

It is said that sales growth will fix all problems and lead to cash flow improvements. This, of course, is right, but sales growth can sometimes conceal a lot of underlying problems. When you are managing a growing business, you have to watch expenses carefully. Don’t be fooled by simply expanding sales. Any time you see expenses growing faster than sales, or exceeding your budget, examine them carefully.

All creditors should be taken seriously

The support of certain key creditors could be the difference between business success and failure. Generally, creditors fall into three categories. Your financial backers, critical suppliers and inflexible suppliers.Here are some suggestions for controlling and managing your payables:

  • Purchasing requirements should be discussed with suppliers. It will be appreciated as it helps them with their inventory planning.
  • Communicate with your suppliers so they know your financial situation. If you ever need to delay a payment, you’ll need their trust and understanding.
  • Suppliers should be treated as valuable partners. They can usually do more for you than you think.
  • Discounts offered for early payments should be taken. These discounts add up and  go straight to your ‘bottom line’.
  • Creditor’s payment terms should be taken advantage of. Use electronic funds transfer to make payments on the day they are due. You will remain current with suppliers while retaining use of the funds as long as possible.
  • Putting a focus on the lowest price when choosing suppliers is not necessarily a good strategy. Sometimes more flexible payment terms can improve your cash flow more than a bargain-basement price.
  • A good relationship with your creditors is an invaluable lifeline. Particularly if cash flow is tight. It can help you to cope with seasonal fluctuations, hard to get supplies and helping you to fulfil special customer requests.
  • Keep your relationship with suppliers sound by agreeing on clear terms and sticking to them.

Quotable quotes

“One of my earliest lessons was that balance sheets and profit and loss statements don’t pay the bills, cash flow does”. Peter Sergeant

“Happiness is a positive cash flow”. Fred Adler

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