Outsourced CFO — Is CASH the ‘KING’ in your business?

We hear it from many sources…..“CASH IS KING”……but what does it really mean and what should we do?

When managing our businesses, we are all focused on cash — the need to make sales, collect debtors, pay our staff, pay our suppliers and pay our bank. If we get it right there should even be enough left for a dividend to reward us for ownership!

Whether times are good or bad, the need for strong and effective cash management is always there.

So what are the key things we should all be focusing on?

1.  Measuring cashflow:

Accurate cashflow projections can be critical for making us aware of potential problems on the horizon. It is worth taking the time to prepare one for the coming year and the coming quarter. If cashflow is very tight, then weekly projections may be critical too.

Given their importance, make sure you are taking into account the current situation with:

• your debtors (are they paying quickly or slowly, can it be improved)
• your finance payments (principal and interest — usually set in stone)
• your supplier payments (stretching needs to be done carefully to make sure your relationships stay strong for the long term)
• your stock level (is the level too high?)

2.  Improving your cash collections:

Cash sales are a great thing for cashflow, however not the norm for most businesses. Some thoughts to consider for speeding up the time between a sale and cash collection:

• ask for a deposit at the time an order is placed
• enforce credit checks on all new customers
• offer discounts for early payment (need to be careful)
• ensure processes are in place for set follow up times for outstanding invoices

3.  Managing your cash payments:

Whether sales are static or growing, maintaining control of cash outflows is critical. All costs should be analysed individually to ensure they are both needed and being controlled. Some thoughts to consider:

• consider offers of discounts for early payment (if they make sense)
• pay on the last day of creditor terms (using electronic funds transfer makes this easier)
• communicate regularly with your suppliers (if you need to delay a payment they are more likely to understand)

Our Outsourced CFO service assists business owners to maximise returns from their business. Please contact David or John on 07 3221 4465 if you have any questions about this article or need any assistance with working on your business.