Cash Flow | SPECIAL REPORT
CASH FLOW IS, without a doubt, the lifeblood of a business. While securing sales and improving profit margins are clearly important— if there is no system in place to collect money owed and there are no funds in the bank to pay monthly bills, meet staff wages, or purchase raw materials or new equipment—the business will undoubtedly suffer. The current economic climate has put further pressure on cash strapped firms with the banks’ lack of appetite to fund the sector and many companies striving to secure stable funding facilities in order to prevent themselves from becoming victims of the recession. “With uncertainty in the economy continuing, cash flow management has never been more crucial in ensuring that businesses are equipped to survive the downturn and the challenges along the way,” says Graham Byrne, Director and spokesperson for the leading independent invoice financier, Bibby Financial Services.
UNDER PRESSURE
Every firm has different financial pressure points caused by late payments, seasonal peaks or sudden large bills. Managing cash flow is about being prepared and dealing with these effectively. Effective cash flow management is vital if a business is to survive and succeed. Yet, very often, this area of a business is overlooked. Many business owners get embroiled in generating and fulfilling sales, leaving little time to concentrate on the financial controls and forward planning. As a result, businesses suffer and their very survival is threatened. For Graham Byrne cash flow must never be left to chance: “It is vital to have an accurate system in place for effectively monitoring and managing cash flow levels,” he explains. “There is no room for guesswork – working with unreliable or patchy information could spell disaster for businesses.”
“there is No room
for guesswork
– workiNg with
uNreliable
or patchy
iNformatioN could
spell disaster for
busiNesses.”
cash is
kiNg
Cash management is one of the most direct ways to reduce wastage and inefficiencies in the business, optimising funds available for investment and reducing interest costs. Improving cash flow can have immediate results in terms of improved credit ratings and higher share prices. Many businesses feel backed into a corner by the demands of their key customers, as they can ill afford to lose a contract which makes up a significant percentage of their revenue. However, by applying some basic cash flow management, businesses can help safeguard themselves against the perils of late payment and keep vital cash flowing into the business.
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With trying times for businesses as the downturn continues to put a squeeze on Irish SMEs, InBusiness reports on the importance of effective cash flow management when it
comes to unlocking business potential.
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ANALYSE THIS
For SMEs the most important aspect of cash flow management is avoiding extended cash shortages, caused by having too great a gap between cash inflows and outflows. Therefore, you need to perform a cash flow analysis on a regular basis, and use cash flow forecasting so you can take the steps necessary to head off cash flow problems. A cash flow analysis involves examining the components of your business that affect cash flow, such as accounts receivable, inventory, accounts payable, and credit terms. While there are a number of software accounting programs available with built-in reporting features for cash flow
InBusiness May 10 67
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