One of the biggest issues I come across when talking to business owners is “Cashflow”.
Or more commonly, the lack of it!! So why is it such an issue?
Often Business owners look at their P & L and it shows a profit, but I hear them say, “where is the money?”
Here are the main causes of poor cashflow:-
- Outstanding debtors – You’ve done the work/sold the product, but it takes them 30, 60, 90, or even 120 days plus to pay you. Shorten your terms and get tough on them.
- Overstocked – Too much is tied up in holding excess stock. Sure, 3 years supply of widgets at half the normal price sounds like a deal but you have to pay for it now and what if that type of widget get superseded or just goes out of fashion? What then? You’re stuck with them.
- Tax – you’ve paid it, we all have to! But, it’s not recorded on your P & L.
- If you’ve repaid any capital back either to yourself or to the bank, the money is also not recorded.
Once of the best ways to manage your cashflow is to budget for GST and other tax payments as well as any capital repayments. This way you’ll have a more accurate figure and understand your cash better.
Getting tough on your debtors, not only makes sense; it puts $$$$$$ into your bank account!!!