By Steven Glicher at Harts Accountants
Cash is the lifeblood of your business and the term “cash is king” applies now more than ever. Clients often get hung up on turnover without considering profit, but even more important, is cash. Without it, your business simply cannot survive.
The old adage applies, turnover is vanity, profit is sanity and cash is king. Many a firm has blindly followed their turnover figures without looking at the effect on cash, which has caused some spectacular failures in the past. So, what do you need to consider when looking at cash?
Look at the cash sticking points that your business faces and see what you can do to improve them. Firstly, what payment terms do you take off your suppliers? Do you have to pay upfront for the goods or can you get at least 30-day payment terms from them? The longer terms you get, the less your cash is tied up in production.
Can you increase production efficiencies so that the time it takes to produce your product or service is reduced. This will accelerate the time it takes to bring the money in.
If you are a service business what is the time span between work being undertaken and being paid for this work? Look at the controls in place to ensure efficiency of workflow in order to reduce the amount of work you have tied up in work in progress.
When do you raise your sales invoice? Is it on delivery, or can you invoice upfront, or take stage payments for the work you do? Don’t delay issuing sales invoices as this can push cash collection back by at least a month depending on your customer’s terms.
How are your cash collection procedures? Do you give too much credit? Do you risk profile your customers and set credit limits? Try and do credit checks on your customers as the last thing you will want is bad debts.
Agree credit limits and set up your system to alert you if they are breached, so any action can be taken on a timely basis.
Barriers to payment
Sorry we don’t take credit cards…Why not? Make it as easy as possible for customers to pay you. There are many options these days such as Stripe, iZettle, Paypal along with the mainstream card providers all of which will link in to your accounting software.
It is important to not only monitor your bank balance, but also to look at forecasting your cashflow position. If you look ahead this will highlight in advance where you need to make changes and the opportunity to alter the cashflow outcome. If you are looking to raise finance or increase an overdraft, having an awareness of an imminent cashflow shortage gives confidence that you are in control of cashflow rather than cash controlling you!
In this brief article, we have touched on a few pointers to see how you can improve your business’s cash position, however there is much more you can do. At Harts, we have helped numerous company’s with cash issues and as always we are here to help wherever we can. Please get in touch to see what we can do for you.
About Steven Glicher: Steven has a wealth of experience in accountancy and tax and runs strategic planning sessions at Harts. Please get in touch by email email@example.com