Cashflow - Monitor & Control

It is a function of good business management to have controls in place to manage Cash-Flow. If a business is doing well, is busy and there are funds in the bank it is easy to forget best practice when it comes to monitoring and managing cashflow. Below are a few reminders on what to monitor:

Understand your Cashflow - do you know how much in costs the business will be required to pay over the next 30, 60 and 90 days including payables, loans, GST, income tax. Are you confident you will have the funds when needed?

A growing business will find that receivables and stock/work in progress balances will increase (meaning these amounts will take longer to be received into the bank). As well as this there will be an increase in wage, GST and tax costs, which will all have an impact on cashflow.

Understand your Profits - how much profit does your business generate per month? Is this enough to cover payables, loan and hire purchase payments? What parts of the business are most profitable (both as a $ or %)? Can you invest more time into areas that provide improved profit?

Accounts Receivable – is there a system to ensure that invoices are paid on time? Depending on your business you may have terms that require payment within 7, 14 or 30 days. Ensure you have a system to follow up non-payment the next 1or 2 days after payment is due. The squeaky wheel gets oiled. If you follow-up to get paid this will hopefully get your business to the top of the payments list.

Owner Drawings – if the monthly drawings/wages that owners are taking out of the business is higher than normal, are enough funds being set aside for tax?
Are drawings within what the Company can afford to pay?

Stock Control - Stock on Hand is effectively cash not sitting in the bank. Are there good controls over stock purchases so that you are not over stocked? Unnecessary funds tied up in stock would otherwise be sitting in the bank account.

Review the Information – Do you have relevant information to assess your business on a regular basis to confirm if you are on track with expectations? While it’s okay to be thinking ”business is going okay” or “business seems to have slowed up” what are the facts?
If you require assistance getting the relevant reports and information from your accounting system to check on progress, get in touch.

Heed the Warning Signs – there can be many signs that the cash flow situation is changing including; funds are not available to pay accounts payable on time, additional costs are being put onto a credit card, trouble meeting loan or any tax payments as they fall due. Taking action in the early stages can reduce problems further down the track.