CON­TRA­VEN­ING THE CASH-FLOW CODE

Finweek English Edition - - MONEY - BY THAYN NIE­MAND

It is said that “profit is but a cal­cu­la­tion, and that cash in the bank is cru­cial in or­der for a busi­ness to sur­vive”. This, how­ever, brings up the ques­tion of whether busi­nesses can ac­tu­ally be sus­tain­able in the long term when man­aged us­ing a strat­egy of fo­cus­ing only on cash flow. Long-term sus­tain­abil­ity and busi­ness health is eval­u­ated not only by the amount of cash in the cof­fers of a busi­ness but also by ref­er­ence to other fi­nan­cial man­age­ment ele­ments.

Fo­cus­ing only on cash flow has lim­i­ta­tions, and the busi­ness owner who as­pires to greater lev­els of suc­cess will even­tu­ally find him­self or her­self un­stuck when po­ten­tial fun­ders, in­vestors or busi­ness suc­ces­sors are sought. Ques­tions asked will then re­late not only to the cash flow of the busi­ness, but an­swers will also be re­quired around many man­age­ment mat­ters in­clud­ing, but not limited to: net profit, gross profit, breakeven point, safety mar­gin and stock turnover ra­tio.

Fo­cus­ing at­ten­tion ex­clu­sively on mon­i­tor­ing cash flow will not make the busi­ness owner aware of other use­ful fi­nan­cial in­for­ma­tion re­lat­ing to the busi­nesses and over­all fi­nan­cial per­for­mance. Con­se­quently, in­formed de­ci­sions can­not be made to safe­guard and boost the prof­itabil­ity of the busi­ness and also, coin­ci­den­tally, the all-im­por­tant cash flow re­quire­ments of a sus­tain­able busi­ness. Fi­nan­cial qual­i­fi­ca­tions are not absolutely nec­es­sary to be­come a bet­ter fi­nan­cial man­ager. Busi­ness own­ers that grasp cer­tain fi­nan­cial man­age­ment basics will find them­selves in an ex­clu­sive bracket of en­trepreneurs with the abil­ity to make ed­u­cated de­ci­sions to boost their chances of suc­cess. Ser­vices of­fered by fi­nan­cial man­agers and ac­coun­tants are in­valu­able in any busi­ness. They should, how­ever, not only bal­ance the busi­ness’s books, but also reg­u­larly pro­vide key fi­nan­cial man­age­ment in­for­ma­tion about the per­for­mance of the busi­ness in a for­mat that en­ables the busi­ness owner to as­sess the health of the busi­ness and to make in­formed busi­ness man­age­ment de­ci­sions. Fi­nan­cial re­views should be un­der­taken at least ev­ery month in the first two years of any busi­ness’s life cy­cle.

Busi­ness own­ers who are not able to af­ford the ser­vices of a fi­nan­cial man­ager or ac­coun­tant should not de­spair. By us­ing

ba­sic math­e­mat­ics and reg­u­lar com­par­isons of their own in­for­ma­tion, the busi­ness owner can still im­prove they way he or she man­ages the busi­ness’s fi­nances. The avail­abil­ity of ac­cu­rate in­for­ma­tion and the abili ty to com­pare ap­ples with ap­ples i s, how­ever, crit­i­cal to the re­li­a­bil­ity of the fi­nan­cial man­age­ment cal­cu­la­tions along­side (if the busi­ness is VAT reg­is­tered all fig­ures should ex­clude VAT, if non-VAT reg­is­tered, VAT should be in­cluded).

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