Posts Tagged cash flow

Cash flow control for small business – without it you fail!

By definition a small proprietary business must fulfill two of these criteria;
– consolidated revenue of below twenty-five million dollars a year,
– value of consolidated assets at year’s end of less than twelve and a half million dollars, and
– the company employs fewer than fifty staff.

And what we are trying to say is – even at these levels, this is a LOT of cash right?!

Recent statistics show that ninety percent of all companies in Australia are small businesses. More than two and a half million Australians run these firms, directly employing a further five million people. As of February 2012, bankruptcies have risen by forty-eight percent (48%). Poor cash flow controls account for many of these failures – this is why it is vital for the Australian small business person to learn how to get it right.

Cash flow analysis is a vital tool to keep the business healthy. Preparing a cash flow budget is a core skill for keeping tabs on the company’s finances. Without these basic checks,a business might show a profit, but in reality be short of cash due to late payments by customers. A projected cash flow statement estimates the stream of money through the business in coming months, based on the history of sales and expenses. These periodic exercises reveal the current state of play in the financial welfare of the small business.

In the current monetary climate it is vital for every Australian small business to use the correct diagnostic processes to ensure they know exactly where their money is, where its going and how to raise more cash if necessary. Cash flow management practices anticipate when needs will crop up and predict what’s coming. A good motto to remember is “Cash is King” – it is the lifeblood of the small business. Recommended reading on this topic is a great book by Philip Campbell called “Never run out of cash”.

Taxes are one of the major expenses for all firms. The Australian Taxation Office offers small business support along with free and useful taxation advice. Another useful source of assistance for the Australian small business is the Australian Securities and Investments Commission who provide financial advice and services. An Australian Business Number can help to register for G.S.T and other company tax obligations. Without this number,other firms can withhold up to forty-six and a half percent of payments due to your company. Find out all you can about tax breaks,concessions,G.S.T credits. Take full advantage of this free and helpful tax advice – there are no strings attached.

Business bank accounts are vital to every small firm. It is good practice to deposit cheques daily. Mobile and on-line banking can be cost saving digital tools to put businesses on track towards responsible money management. Late bill payments can ruin cash flow as well as damaging your credit score, online banking reduces the potential costs with scheduled automatic payments. Program an alert to review varying bills and pay on-line without the postal delay of a cheque. Keep a rigorous check to reconcile your payments against your bank statements. Stay on top of disbursements to control cash flow.

Without learning these cash flow lessons, things can go downhill fast for the small company. Many business failures are primarily caused by a lack of education about cash management. Ensure you know the basics, such as collecting monies urgently and pay invoices as late as possible without incurring late fees or interest payments. Inventory is dead weight – liquidize it fast. Get cash into your firm rapidly, then hold on to it!

Cash flow control is the most important ingredient for the success of small businesses in Australia and worldwide.

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Cash Flow is King

My success in business has, from my oppinion, partly come from the fact that I monitor cash position like my life depends on it, and well I guess it does!

For me, knowing where every dollar is and what the company actually has in terms of available funds to work with or to secure future downturns (a cash buffer), is paramount. I believe a business needs to know this on a detailed level by considering existing debts, future debts and future incomes.

I find that completing a schedule at least monthly has given me the peace of mind to know just what the cash in the bank account really is available for. Its amazing that what has flowed with that is successfully creating a cash buffer that allows me to feel secure and use funds to market and expand further.

Suddenly, paying the BAS each quarter, or the superannuation costs each quarter, (which let’s face it, always are paid with an ounce of anger because they feel like wasted money that is bringing us no gain right?!), become less stressful because I know the funds are available. In fact that that the funds for my compliance payments are available and there is still more for my business and my lifestyle.

Remember, “Paying Tax Means You Are Making Money” – It’s a good thing! This view is very important. Almost as much as ensuring we do not live beyond our means. If you have a profit of $100K, it’s just the way of the world, $30K is not available to the business, (excluding other deductible considerations of course).

Anyway, I have attached a copy of the early template for a cash position calculation I use within my business every month, and still do. It’s tailored to my retail telecommunications company of course which may not suit many businesses but it maintains a structure that can certainly lead you in the right direction to knowing your cash position and monitoring “every dollar”!

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