Rising input costs are biting into cashflow for many businesses and, as we know, if the cash dries up, other problems follow thick and fast. How we manage our cashflow in tough times is a challenging question for business owners but – as with most things – a good plan can get you on the right track.

If you’re looking to improve your cash position have you thought about how you can take stock of your products and services and focus on areas you can improve?

With this in mind, do you have in place?

  1. A cash target i.e. two months of core capital, (two months of Labour & Operating expenses)?
  2. Processes to improve cash on hand (see some ideas below)?
  3. Regular Forecasting, to predict future Profit and Cash positions?

Cash flow management goes hand-and-hand with business management. If you’re looking to improve cash in your business try the following suggestions;

  1. Focus on it – without cash, you fail!
  2. Look for ways to constantly improve your business.
  3. Shorten the cash cycles (the time period between when a business pays cash to its suppliers for inventory and receives cash from its customers). In other words, speed things up.

Following is a list of suggestions that could improve cash in your business. See which ones might work for you.

  • A daily Cashflow statement so you see what has come in, what has gone out, and what requires attention today
  • Adjust your billing process to ensure you aren’t missing any money owed to you and to get everything on a schedule.
  • Send friendly reminders to clients prior to deadlines.
  • Look at your terms of payment, and offer incentives for alternative methods of immediate payment (i.e. direct deposit).
  • Check for customer satisfaction as soon as jobs are completed, and send invoices immediately
  • Ask for better credit terms from key suppliers or see what expenses you can pay with a credit card (you still have to pay, but you may be holding your cash for longer)
  • If you are achieving 10%+ Net Profit over a longer-term (Rolling 12 months) your cash will be improving.
    • As inflation is rising, adjust pricing and look to improve margins and profit.
    • Ensure your Labour productivity is improving: $ of Gross Profit for every $ of Labour
  • Forecast Profit and Cash using sales and the true margins from your business
    • Rolling 12 numbers: COGS %, Direct Labour, Operating Expenses.
    • Assumptions are constantly changing so keep it updated, we suggest a re-forecast every three months and set 90 Day Goals for the next Quarter.

If you would like to improve profit and cash in your business, reach out to The Alternative Board. We offer NumerEyes reports to assess your business and work with you to achieve your Profit and Cash targets. And If you have any other ideas for improving cash in your business please let us know!

The Alternative Board - OwnersAuckland EastWhat is your cash target?
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