Cash flow for a business is like blood flow in our body. Reduced blood level or pressure makes us ill, reduced cash flow in a business makes it dysfunction. Cash flow must be planned and controlled. Its availability allows the operation proceed smoothly. Owners and Managers decision-making process is more effective knowing that there is enough cash in implementing plans. Insufficient cash flow results in implementing a less desirable choice within operations. A company might have a product or service that is in demand and trading profitably but collapses due to lack of cash flow. Here are seven considerations that can help the businesses to plan, manage and refine their cash flow:
Forecast your incoming and outgoing cash amount
Your sales and expense history is a good place to start in forecasting your businesses cash requirement.
Monitor your planed cash flow against actual
Keep on top of a weekly or biweekly cash flow forecast verses actual flow and look ahead at least eight weeks at a time.
Adjust the forecast based on your Actual
Don’t wait too long in adjusting and prioritise the forecast based on your actual cash flow.
Cash usage priorities for Fabricating, manufacturing and contracting business
Employees, raw materials, and machinery expenses are number one priority. Building expenses (rent, maintenance and utilities), business insurances and government taxes are second priority. The rest are prioritised accordingly.
Cash usage priorities for Service business
Employees and service delivery expenses are number one priority. Building expenses (rent, maintenance and utilities), business insurances and government taxes are second priority. The rest are prioritised accordingly.
Cash flow management systems and procedures
Effective managers implement systems & procedures within their operation. This allows them in delegating maintenance task to relevant employees. Systems & procedures implementation requires a thorough understanding within an organization. It is not only the accounting function task; other functions have a role to play in making it a success.
List of recommended systems & Procedures
- Company’s terms policy
- Interdepartmental communication system
- Credit granting & extending procedure
- Credit control and collection procedure
- Cash flow forecasting tools
- Cash flow forecasting procedure
Please contact us for the systems and procedures effective implementation.