Cash Management

 

Many businesses often complain to me that they are always broke or never have enough money to pay their suppliers, tax, VAT and other outgoings.

The fact of the matter is that many small and medium sized businesses do not always understand the connection between sales, profitability and more importantly the need to collect money from their credit customers.

Many businesses I have come across have had the attitude that when they don’t have enough money, they need to go to the bank and borrow, either by way of an overdraft or a loan. In many cases the problem could be solved much more easily and without incurring the costs associated with loans and overdrafts.

The solution in many cases is to enforce your business’ credit policy more rigorously and to collect invoices from your customers as they become due, rather than waiting in some cases for months to get paid. The sad thing is that many businesses are often intimidated by asking their clients to pay their bills on time, and don’t always know how to approach the subject.

The other common problem I have come across is that many businesses do not have an idea of what their outgoings are every month, and do not always anticipate seasonal fluctuations in sales which often results in cashflow issues for businesses.

It is a well known fact that a higher proportion of certain types of businesses go into administration or liquidation during the first quarter of the year. This is due to constraints on customer’s spending following Christmas and the New Year during which time people have less disposable income to spend on luxuries.

Cashflow planning and management is the key to any successful business, and having the money in your bank account rather than in your customer’s bank account is the way to run a successful business.