Good cash flow is good for your business

good cash flow for business from Colour Accounting from Holst

That might seem an obvious statement. But it only takes a few minutes watching Dragons Den to see that even otherwise confident, savvy business people can have big gaps in their business financial literacy.

A business requires more than profitability to be successful. You might have a great product or service and a sales team that consistently closes their deals, but if you don’t manage your cash in and out of the business, it will suffocate and die. Think of cash flow as the oxygen your business needs to deliver those profits and ensure sustainable success.

Good cash flow for business

Here are five questions to ask yourself, regardless of whether you are a start-up entrepreneur or a seasoned business professional: 1. How much cash do we have now? Basic but essential. Without this, you can’t then ask … 2. How much cash will we have? Forecasting is the key to sustainability and growth. Without a plan of future income and expenditure you can’t factor in essential investments or bad debt. Regularly update your forecast for maximum accuracy. 3. Does everybody understand the importance of cash? Make sure your team understands that the deal isn’t really done until the cash is in the bank. Be clear from the beginning when customers are expected to pay and be meticulous in chasing late payments. 4. Is capital expenditure appropriate? Perhaps you need a new asset for the business, for instance a vehicle or piece of machinery. In some circumstances ownership is the right way to go, but you need to consider the tax implications. Speak to your tax advisor to discover if leasing/hiring would be more efficient. 5. What are the implications of a bank loan or overdraft? You must fully understand the terms of any loan – personal guarantees, interest rates, charges or covenants will always be in the small print. You’ll also get a better deal if your own credit rating is healthy. Agree manageable terms with your suppliers and pay your debts on time. Of course, you might find that you don’t need to borrow if your cash flow is in tip-top shape… Learn more with our one-day financial literacy training workshop Colour Accounting™. Learn more here.]]>

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