Welcome
To the blog for small and medium sized business (SME) owners.
There are many aspects impacting on your business cash flow. However always remember CASH is the lifeblood of your business and every effort should be made to protect your business cash flow.
The 7 golden rules to adopt in control of your cash are:
1 Know your Cash Balance at all times
Sounds obvious but not always actioned by business owners
2 Forecast your Future Cash Flows
Maintain a rolling forecast of your future business cash flow and measure actual results against the forecast and understand reasons for any variance from plan.
3 Take action
Corrective actions should be taken, if possible, to eliminate any variation from forecast.
4. Arrange finance
Do not overstretch your cash position through non financing of capital items
5. Rent not Buy
Do not buy if a renting option is available
6. Manage Your Overheads
Do not waste your cash resource through overspending on overheads. Use immediately what you buy, do not tolerate slow moving materials.
7. Manage your Receivables
Be proactive and avoid slow payers and bad debts.
Many business owners may be required, perhaps by a third party or as part of the business internal control measures, to prepare financial forecasts.
This may be a daunting task to some, but for organizations that do control the performance of the business the exercise will be part of normal routines and probably completed with little difficulty.
When preparing a budget the following 7 points are worthy of note:
Plan the exercise
Set a timetable and involve all appropriate staff within the organization and communicate the responsibilities each will have in the preparation of the budget. They will then have ownership for their department.
Remember the Business Strategy
The budget should be a ‘measurement’ and reflect the progress made in implementing the business strategy. The goals may be set, the strategy implementation process commenced and the budget should flow to indicate in financial terms whether the business is on course to achieve the financial goals set. Linking the budget to the business strategy will ensure planned actions will stretch the business resources but remain realistic.
Past Performance is irrelevant
Remember the budget is a financial forecast of the impact future actions will have on the business and whilst past results may be of passing interest, it is what is done in the immediate future that is important.
Analyze the Risk
The business should understand the risks in achieving the budget and have a fallback position should risks materialize.
What is included?
A budget should be more than just a sales and profit forecast. A cash flow forecast and Balance Sheet are as important as the revenue numbers and should not be ignored.
Check
Upon completion of the budget, review, check and amend as necessary the assumptions made and the numbers.
Be in Control of the Process
Effectively manage the budget preparation process and do ensure all budget owners adopt a consistent approach and fully justify all sales and expenditure proposals.
For more helpful hints and tips for the business owner visit the DAW Consulting website.
