If revenue is vanity, cash really is King!

Why Cashflow can be more important than revenue

It’s often said that “revenue is vanity, profit is sanity and cash is king”, and here at TAG Accountants Group, we are very much in agreement.

Companies that chase sales without considering the subsequent impact on cash flow can end up in difficulty, many of them fast-growing, potentially very successful businesses. Cash really is king when it comes to the fiscal management of a company, particularly given the time that often elapses between paying suppliers (and, of course, employees) on the one hand and collecting the cash you are owed on the other.

The Challenge of Cashflow Management

Although cash flow management can be challenging, it’s not “rocket science”! By tightly controlling cash outflows and “encouraging” customers to pay quicker, financial pressure can often be reduced or even, in some cases, eliminated completely.

Business owners that prepare cash flow projections (often in a monthly format) can plan accordingly. It’s obviously much easier to approach a lender for some additional short-term borrowing if you are aware in advance of the scale and timing of the problem rather waiting until it’s too late.

Some ways to improve the timing of cash receivable.

Here are some ideas to help your team speed up cash collection:

• Offer discounts to customers who could pay their bills quicker;
• Ask customers to make deposit payments at the time orders are taken;
• Instigate credit checks on all new non-cash customers; and
• Issue invoices promptly and follow up immediately if receipts are slow in arriving – don’t be afraid to contact customers before the invoices are due to gently remind them!

Keep a tight rein on business expenses and the timing of any payments.

Here are a few ideas to help you manage your cash outflows:

• Take advantage of creditor payment terms. If a payment is due in 30 days, don’t pay it in 15 days;
• Use your Bank funds transfer to make payments on the last day they are due; 
• Consider suppliers’ offers of discounts for earlier payments if they are generous; and 
• When choosing suppliers don’t always focus on the cheapest deal. More generous payment terms can often improve your overall cash flow!

Preparing a basic cash flow forecast. 

We would always advise using a spreadsheet (there are free on-line applications), but you can still use paper if you really want to! Start by recording your bank balance at the beginning of a month and add in your projection of cash to be received from customers and other income.

Then, using a separate line for each category or expense, deduct from that your projection of any future cash payments. By examining the resultant closing balance, it is important to identify any future cash shortfalls (as compared with any overdraft facility) to determine an appropriate and timely course of action. 

As your accountants, we’re always here to help businesses.

We have helped many businesses prepare monthly cash flow forecasts and can offer sensible and realistic advice on managing your cash. With that in mind, call one of our experts here at TAG Accountants Group on 01902 783172 or click HERE to set up an exploratory, no obligation meeting to discuss how we could do just that!