To the blog for small and medium sized business (SME) owners.

Thursday, December 21, 2006

Business Cash Flow

It is important that business owners not only understand the meaning and relevance of cash flow to their business, but also how the owner's daily actions impact the business cash flow within their organisation.

What is cashflow?

It can be simply defined as the net amount of cash generated and used by a business during a given period. The relevance of generating positive business cash flows is SOLVENCY!

It is unusual to find anyone in private or business life who sets out to be classed as insolvent, however, a lack of financial management and control may render the business to a period of uncertainty due to a shortfall in cash to meet current and future committments.

This situation is usually found in businesses where financial planning is not considered part of the core administrative work. The business may become reactionary to difficult situations rather than pro-active in avoiding damaging events - normally driven by a lack of liquidity (cash) in the business.

Such circumstances are often brought about by many small errors on the part of the business owner over a prolonged period rather than one single major event. This may result from a lack of understanding of the financial impact on the business of even 'minor' decisions; an inability to see the "big picture".

If the business owner does not have access to a full-time financial expertise, consideration should be given to employing a part-time Finance Director to help in planning and financial management of the business.

The cost of p/t finance director help may be insignificant compared to the cost of a failed business.

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