subject: 5 Ways To Spot Cash Flow Problems In Advance [print this page] Successful businesses operate on the theme if you fail to plan then you plan to fail. Keeping a close watch on your cash flow now can prevent problems in the future. There are a number of key items you need to focus on to ensure cash flow problems do not spiral out of control. Cash flow projection, close scrutiny with your finance team and ensuring debt recovery is a simple process that will keep your business on track.
Cash flow projection
There is no point taking the time to create a cash flow projection unless it is realistic. Look at prior years' figures and if you know there are going to be additional expenses or lower income in future periods, make allowances for such variances.
As a rule it is always better to be conservative with cash flow projection. This way you move into the year with all appropriate contingencies in place.
Debt recovery
Don't under estimate the importance of debt recovery as your cash flow depends on it. Every business has overdue or doubtful debt. Managing the recovery of such debt is critical to business liquidiy. If you are struggling to get customers to pay their bills you may need external help through a debt collection agency. Many debt collection agencies offer their services on a no collection no fee' basis. By leaving the recovery to such professionals allows you to focus on core business and not worry about the recovery of outstanding moneys and therefore you minimise a major element that may adversely effect your businesses cash flow.
Monthly Monitoring
Constant reconciliation and revision of your cash flow projection is a must. Look for patterns that may need attention. For instance, are there certain times of the years when you consistently have less income and greater expense?
Cash flow projection is really an estimate of what you expect to make and what you expect to pay out (Cash receipts minus Cash expenditure). If you do not review and revise original forecasts, you may be faced with nasty surprises at the end of the year. Do revisit the original forecase and made adjustments regularly. This will go a long way to spotting any cash flow problems.
Consult With Your Finance Expert
Whether you have an internal finance department that looks after the monthly reports or if you rely on regular reviews by your accountant (or financial controller), the more you communicate with the people in finance the better off you will be at managing your cash flow.
Knowledge is a powerful tool when it comes to understanding your own finances. You do need to follow up on advice from those monthly reports or reviews. This will assist in spotting any potential cash flow problems that may come back to haunt you later down the track.
Payment Terms
While this needs to be considered in your monthly monitoring it also deserves some individual time. Look at how your customers are paying. Are they taking notice of the payment terms and if not, why not? It might be as simple as drawing their attention to the fact that their account with you is on a 14 day basis for instance.
If there is a general trend that most customers are struggling to meet your deadlines perhaps your payment terms need revising. Approach your suppliers to extend your credit and you in turn can increase the days due to your customers.
Cash flow is imperative to your daily operations. Keep checking and revising throughout the year and monitor your business debt recovery processes to ensure the end result is a positive one.
by: John Zukerman
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