Is cash flow or the bank balance your measurement of business success?
There are no cash flow forecasts which identify projected income and expenses.
There is little or no advance planning around staff holidays, organisational shut-downs or slow retail periods.
Instead, there is a keen eye on the bank account – right. Decisions are made based on that single daily snapshot of the business’s financial status.
Is this your method of business management? If you are nodding your head and the bank balance and not cash flow is your method of measuring business success, you need to re-evaluate your approach – and quickly.
Making business decisions – whether minor or major – based on your bank balance is risky and dangerous. It is also inaccurate – your bank account on any given day is merely an outcome of different actions and influences that are going on within the business.
But do you know what those actions and influences are? Understanding what your major influences are, and their effect on cash flow, is the key to not only effective cash flow management but also sustained financial growth.
For example, do staff members have KPIs for their roles? An example may be a plumber achieving a target number of chargeable hours per day. KPIs deliver performance transparency, making it easy to identify where staff performance may be enhancing, or detracting from, your cash flow.
Similarly, what are your payment terms? If you are on a 7-day account for purchases but offer your customers a 30-day account, then your cash flow will be severely impacted. Adding wages to this scenario, if you pay staff on a weekly or fortnightly basis then you are even further behind.
Do you have effective business procedures in place, such as: clear Terms and Conditions, order confirmations or job sheets, a practice of invoicing immediately on completion, and a credit control plan?
Many business owners skip some of the cash flow basics, particularly in relation to debt collection. Again, the key to this is effective systems. Systems can remove the personal from the business relationship and set up an expectation between you and the client. The client knows what to expect, with effective credit control starting at the beginning of the customer relationship – not from the date their invoice becomes overdue.
Effective business procedures have a significant impact on your cash flow. Not only do they cut cost through efficiencies, but also reduce the time gap between cash in and cash out.
Regardless if you are an experienced business owner or only just starting your business, creating a cash flow forecast and actively managing your cash flow not only makes good business sense, but also is absolutely essential business management.
Do you know your cash flow requirements?
We can help. At CFO@Call, we understand the challenges you face, especially when it comes to managing costs and maintaining profitability. Our experienced team of business advisors specializes in guiding construction and tradies business owners towards financial success. Whether you’re looking to navigate cashflow issues or need assistance with overall financial management, we’ve got you covered. Take the first step towards growth and profitability by reaching out to us today. Let’s work together to transform your business and achieve the success you’ve always envisioned. Contact CFO@Call now and embrace a future of greater profit margins and financial stability!