Man­ag­ing your cash­flow is vi­tal

CHB Mail - - Property Brokers - BY MICHELLE TURFREY Part­ner — Busi­ness Ad­vi­sory Crowe Hor­wath

As a busi­ness owner, you need to un­der­stand the things that im­pact on your cash­flow and how to man­age them.

Your cash op­er­at­ing cy­cle is hugely im­por­tant, par­tic­u­larly in times of growth.

Man­age­ment of cash can be the dif­fer­ence be­tween suc­cess and fail­ure even in a buoy­ant econ­omy. Those busi­nesses that keep tight con­trol on cash are far more likely to pros­per in both good and bad times.

The ba­sic flow of cash is:

■ Goods pur­chased

■ Cred­i­tors — cred­i­tors paid

■ Goods sold

■ Debtors — debtors re­ceived Man­ag­ing each step is the dif­fer­ence be­tween good and poor cash man­age­ment

Cred­i­tors:

Con­trol­ling costs — en­sur­ing no slip­page of cash with un­nec­es­sary ex­pen­di­ture.

■ Re­view con­tracts and sup­ply agree­ments for pric­ing and terms.

■ Man­ag­ing credit terms that as­sist with cash­flow while sat­is­fy­ing cred­i­tors’ ex­pec­ta­tions.

■ Dis­counts, en­sur­ing that terms are met to make the most of these.

■ Pay­ing early might make you look good but won’t help your bank bal­ance.

Stock Man­age­ment:

■ Only car­ry­ing stock needed

■ Can you or­der as re­quired rather than car­ry­ing stock?

■ Don’t be fooled by vol­ume dis­counts — car­ry­ing ex­cess items could out­weigh the dis­count.

■ Sell­ing old stock at a dis­count may be bet­ter than car­ry­ing it un­til it’s ob­so­lete.

■ Invest in a stock man­age­ment sys­tem — sav­ings may out­weigh the in­vest­ment.

■ Stock in busi­ness ve­hi­cles — in­cor­po­rate into any stock man­age­ment sys­tem. It of­ten adds up to a con­sid­er­able dol­lar value.

Debtor man­age­ment:

■ In­voice reg­u­larly — don’t wait un­til the end of the month

■ Set pay­ment terms and be clear about them — set your pay­ment ex­pec­ta­tion.

■ Be firm with debtors.

■ Chase out­stand­ing debtors early, as soon as they are over­due. Have a plan for when a debtor doesn’t pay. At what point do you stop work­ing for or sup­ply­ing them?

■ Invest in sys­tems for ac­cu­rate up-to-date debtor in­for­ma­tion.

■ En­sure your de­posit de­tails and op­tions for pay­ment are on all in­voices and state­ments to en­able ease of pay­ment by cus­tomers

Bank­ing:

■ En­sure cash­flow isn’t be­ing ab­sorbed in pur­chas­ing longterm as­sets. If pur­chas­ing larger long-term as­sets en­sure you have worked through the im­pact on your op­er­at­ing cash cy­cle be­fore spend­ing the funds.

■ Over­draft — if you spend the whole year in over­draft it could be worth re­view­ing with your bank to see if an amount could be trans­ferred to term debt which is gen­er­ally a lower in­ter­est rate and can be set to be paid back over a pe­riod of time.

■ Re­view in­ter­est rate and terms reg­u­larly with your bank. ■ Build a great re­la­tion­ship with your banker and keep them in­formed of how you are track­ing and what you have com­ing up.

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