FEBRUARY BIZ TIP

Sound cash flow management is the key to business success and failure. Simply put, managing cash flow means controlling and understanding the timing of inflows and outflows.

To help get 2012 off to a great start, we’ve compiled our ‘Top Tips’ for managing your cash…

• Profit and Cash are different. Many profitable businesses have failed due to running out of cash. Income earned and expenses determine profit, whereas cash receipts and cash disbursements determine cash flow. Profit pays back long term debt and provides for growth or dividends. Cash flow pays for the day to day.

• Manage Your Debtors. You must negotiate payment points and trading terms with your customers, then invoice promptly and focus on debtors on a weekly basis so you get paid.

• Know your Expenses and Liabilities. Managing expenses means you will meet payroll, business loans and compliance payments and then review how you pay your expenses to both regular and infrequent suppliers, credit cards etc. This includes other payments such as payroll tax, superannuation, PAYGW tax and BAS payments.

• Prepare a Cash flow Forecast. Your business should have a forward projected cashplan for a quarter, the whole year and even a few years out that closely matches your business plan. Prepare three scenarios - best case, most likely and worst case.

• Implement a Cash flow Process. Depending on your business, this might be daily, weekly or monthly. The process will capture your current cash balance, immediate inflows and outflows, and then both real and projected over at least six to 12 months, so you can adjust and respond to cash critical points.

Put your cash flow process in place today!

 

2012 Biz Tip Archive

JANUARY -  Review the health of your business