The key difference between cash and cashflow in business longevity
You have heard the saying.
Turnover is Vanity, Profit is Reality...but CASH is King!
There is certainly an element of truth in this, tell this to:
Woolworths
Kodak
COMET
Arthur Anderson
RBS
ENRON
I could go on. But you get the gist!!
These companies failed through a number of reasons, but ultimately ALL failed because they ran out of cash through the disruption of the cashflow process.
What I mean is that in order to run a business you must do two things:
Maximise the input of cash coming into the business
Minimise the output of cash from the business
When the reverse happens you will have a problem and the business will eventually fail over time if not additional cash comes into the business.
In these days when extreme cost pressures are on businesses globally to survive, it is imperative that a clear understanding and control of the movement of cash in the business is essential if the business carries on as a going concern.
Some thoughts in maximising the cashflow in the business:
Get a clear understanding of what sales you are looking to achieve month by month over the next year
Firm up any customer agreements to 'guarantee' the income over the period. Offer incentives for prompt payment etc
Review customers that are poor payers and either improve payment agreements or eliminate them.
Always actively collect cash (invoices). It is better in your bank than your customers!!
Get a clear understanding too of all the costs that you spend in running the business
In particular focus on those costs that command 80% of the expenses in your business (could be salaries, marketing, plant, energy costs etc)
Create a cashflow forecast and review this WEEKLY
Obvious, you may say.
But for me, I need to hear it EVERYDAY.
To improve cashflow requires clear strategy and tactics to improve the sales of the business and to minimise the cash leaving the business.
If you want help in working through those strategies and tactics to maximise cashflow, and in turn profitability, then please contact us soonest. Click the link here for more information.
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