The (Not so) secret of Business Durability
In today's volatile economic climate a fundamental business approach is separating the endurers from the also ran’s. The control and careful management of Cash.
Cash is king, is a well known accounting saying. The firms that take this ethos to heart increase their chances of survival and growth by a wide margin.
Most companies are designed to focus on profits and this is to be expected as it is the main reason most exist. There are lots of KPi’s developed that track sales, Gross Profit, hours worked etc. There are fewer metrics when it comes to cash and any business that is serious about not just surviving but growing needs to have a robust cash management system in place. This is normally achieved by creating and maintaining an updated cashflow forecast.
The forecast needs to include the current cash balance, the expected cash outlays and the expected cash receipts, together with the timing of both. A deeper review is required to ensure that the sales team have not committed the company to unrealistic terms or deadlines and that any operational contractual terms are within the company’s cashflow capabilities.
Often this review can identify cost savings and improvement opportunities.
In essence a cashflow forecast, linked to the P and L, is required and needs to be based on the contractual commitments the company has made. It also needs to be updated and monitored on a regular basis to ensure it is both relevant and current. There is no point in creating a cashflow that you update on an annual basis.
For a lot of small companies this review and monitoring is carried out by the owner/manager. However as the business develops and the time constraints on the owner/manager grow, this crucial area is often left unattended.
This is where a Fractional CFO can help. By bringing financial acumen to the table and an ability to ask the relevant questions to ensure that the cashflow and profit forecasts are created using tangible, evidentiary data.
Once it is completed, the result needs to be analysed to ensure it is accurate (as much as that is possible) but also to understand the “WHY” behind any assumptions.
For example, why do our customers take 60 days credit? How can that be changed?
Often small changes can have a major impact on the cash collection.
For a free initial discussion on the above article and to find out more , please contact me on t.dullaghan@ntlworld.com or call me on 07 306 162 553
I am a results-driven, analytical & commercially focused qualified accountant, with a proven track record of success over 20 years in B2B, B2C, exhibitions, marketing, financial, accounting, SME and…
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