Having issues with cash? Here are the next steps.
If your business is having issues with cash, it's important to take proactive steps to address the problem before it becomes a crisis.
If your business is having issues with cash, it's important to take proactive steps to address the problem before it becomes a crisis.
Here are some steps you can take:
1. Analyse your cash flow: Start by analyzing your cash flow to understand where the problem is coming from. Look at your cash inflows and outflows to identify any trends or patterns. Determine if there are any particular areas of your business where cash is tied up.
2. Prioritise payments: Once you have a clear picture of your cash flow, prioritise payments. Make sure you pay your most important bills first, such as payroll, rent, and utilities. If you can't pay all your bills
3. Reduce expenses: Look for ways to reduce expenses to free up cash. Cut back on unnecessary expenses, negotiate better prices with suppliers, and look for ways to streamline operations.
4. Accelerate cash inflows: Look for ways to accelerate cash inflows. Offer discounts for early payment or require deposits for new orders. Send invoices promptly and follow up on overdue payments.
5. Consider financing options: If you need additional cash to cover expenses, consider financing options such as a line of credit, factoring, or equipment leasing. Be sure to review the terms carefully and understand the costs involved.
6. Develop a cash flow forecast: Develop a cash flow forecast to help you plan your cash needs and identify potential shortfalls. Monitor your cash flow regularly and adjust your forecast as necessary.
7. Seek professional help: If you're having trouble managing your cash flow, consider seeking professional help. An accountant or financial advisor can help you identify the root of the problem and develop a plan to address it.
In summary, if your business is having issues with cash, it's important to take proactive steps to address the problem.
Analyse your cash flow, prioritise payments, reduce expenses, accelerate cash inflows, consider financing options, develop a cash flow forecast, and seek professional help if necessary. By taking these steps, you can improve your cash flow and ensure the long-term financial health of your business.
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It's nearly end of financial year, how should I set next financial year to be better?
As the end of the financial year approaches, it's a good time to reflect on the past year's performance and set goals for the upcoming financial year.
As the end of the financial year approaches, it's a good time to reflect on the past year's performance and set goals for the upcoming financial year.
Here are some steps you can take to set yourself up for success in the next financial year:
1. Review your financial performance: Look at your financial statements for the past year, including your income statement, balance sheet, and cash flow statement. Analyse your revenue, expenses, profits, and cash flow to identify areas for improvement.
2. Set realistic goals: Based on your financial performance review, set realistic goals for the upcoming financial year. Be specific about what you want to achieve, such as increasing revenue, reducing expenses, or improving profitability. Make sure your goals are achievable and measurable.
3. Develop a budget: Create a detailed budget for the upcoming financial year that aligns with your goals. Identify areas where you can reduce costs or increase revenue. Make sure to account for any expected changes in the business environment, such as inflation or new regulations.
4. Evaluate your pricing strategy: Review your pricing strategy and consider whether you need to make any changes. Are you pricing your products or services competitively? Are you leaving money on the table by underpricing? Consider adjusting your pricing to better reflect the value you provide.
5. Assess your marketing strategy: Review your marketing strategy and consider whether you need to make any changes. Are you targeting the right audience? Are you using the most effective channels to reach your customers? Consider investing in new marketing channels or strategies to drive growth.
6. Improve your financial management: Consider implementing new financial management practices to improve your financial performance. This could include improving your cash flow management, streamlining your accounting processes, or investing in new financial software or tools.
By taking these steps, you can set yourself up for success in the upcoming financial year.
By reviewing your financial performance, setting realistic goals, developing a budget, evaluating your pricing and marketing strategies, and improving your financial management practices, you can position your business for growth and profitability in the next financial year.
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How do you build a cashflow forecast?
Building a cash flow forecast can help businesses plan their cash needs and ensure they have enough liquidity to cover their expenses.
Building a cash flow forecast can help businesses plan their cash needs and ensure they have enough liquidity to cover their expenses.
Here are the steps to build a cash flow forecast:
1. Determine the time frame: Decide on the period you want to forecast (typically a week, month, or quarter).
2. List all sources of cash: Start by listing all the sources of cash for your business, including sales revenue, loans, and investments.
3. List all cash outflows: Next, list all the cash outflows for your business, including salaries, rent, inventory, and other expenses.
4. Estimate the timing of cash flows: Estimate when the cash inflows and outflows will occur during the forecast period. For example, you may receive payment from a customer in 30 days or pay rent every month.
5. Calculate the net cash flow: Subtract the cash outflows from the cash inflows to determine the net cash flow for each period.
6. Adjust for changes: Review the forecast and make adjustments for any changes that may affect cash flow, such as new sales contracts, changes in expenses, or changes in borrowing.
7. Monitor actual cash flow: Compare the actual cash flow with the forecast regularly to identify any discrepancies and adjust the forecast as necessary. Cash can come from a variety of sources, such as sales revenue, loans, investments, or other income.
By building a cash flow forecast, businesses can better plan their cash needs and ensure they have enough liquidity to cover their expenses.
It can also help businesses identify potential cash shortfalls and take proactive steps to address them before they become a problem.
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5 Tips To Optimise The Working Capital Position Of A Company
Working capital is a financial concept that refers to the amount of money a business has available to cover its day-to-day operations.
In simpler terms, it is the money a business needs to pay its bills, buy inventory, and pay its employees.
Working capital is a financial concept that refers to the amount of money a business has available to cover its day-to-day operations.
In simpler terms, it is the money a business needs to pay its bills, buy inventory, and pay its employees.
Working capital is calculated by subtracting a business's current liabilities (the bills and expenses it owes in the short term) from its current assets (the money it has on hand, such as cash and accounts receivable).
Positive working capital means that a business has enough money to cover its short-term obligations and invest in its operations. Negative working capital means that a business may struggle to pay its bills and may need to borrow money to cover its expenses.
Working capital is important because it helps a business maintain its day-to-day operations and invest in growth opportunities. For example, if a business doesn't have enough working capital to buy inventory, it may not be able to meet customer demand and could lose sales.
On the other hand, if a business has too much working capital, it may be missing out on investment opportunities that could help it grow.
Managing working capital effectively is crucial for the success of a business. By monitoring cash flow, controlling expenses, and managing inventory levels, businesses can maintain positive working capital and ensure that they have the resources they need to operate and grow over the long term.
Here are five tips to optimise the working capital position of a company:
1. Streamline Accounts Receivable: The longer it takes for a company to collect money from its customers, the longer the company's money is tied up in unpaid invoices. To optimise working capital, it's important to streamline accounts receivable by setting clear payment terms and following up on overdue invoices.
2. Control Inventory Levels: Holding excessive inventory ties up valuable working capital. By controlling inventory levels and using inventory management techniques such as just-in-time (JIT) inventory, companies can reduce the amount of money tied up in inventory.
3. Manage Accounts Payable: It's important to pay bills on time to maintain good relationships with suppliers, but paying too early can tie up working capital unnecessarily. By managing accounts payable and negotiating favorable payment terms with suppliers, companies can maintain positive working capital and build stronger relationships with suppliers.
4. Improve Cash Flow Forecasting: By improving cash flow forecasting, companies can better anticipate short-term cash needs and optimise working capital accordingly. Accurate forecasting can help companies avoid cash shortages and ensure that they have enough cash on hand to cover day-to-day expenses.
5. Consider Alternative Financing Options: In some cases, companies may need to borrow money to cover short-term cash needs. By considering alternative financing options such as invoice financing, asset-based lending, or supply chain financing, companies can access the working capital they need without tying up valuable assets or taking on unnecessary debt.
By implementing these five tips, companies can optimise their working capital position and improve their financial health over the long term. Growth opportunities such as new product development, marketing, or expansion into new markets. This can lead to falling behind competitors and losing market share.
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How is cash different to profit?
Cash and profit are two important financial concepts that are often used interchangeably, but they are not the same thing.
Understanding the difference between cash and profit is crucial for managing a business's finances effectively. In this article, we will explore how cash is different from profit.
Cash and profit are two important financial concepts that are often used interchangeably, but they are not the same thing.
Understanding the difference between cash and profit is crucial for managing a business's finances effectively. In this article, we will explore how cash is different from profit.
What is cash?
Cash refers to the actual physical currency or money that a business has on hand or in the bank. It includes all the liquid assets that can be used to pay for expenses or invest in new opportunities.
Cash can come from a variety of sources, such as sales revenue, loans, investments, or other income.
What is profit?
Profit, on the other hand, is the difference between the revenue that a business generates and the expenses that it incurs. It represents the financial gain or profit that a business makes over a given period of time.
Profit can be calculated on a monthly, quarterly, or annual basis, and is typically reported on a company's income statement.
How are cash and profit different?
While cash and profit are related, they are not the same thing. The main difference between cash and profit is that cash represents the actual money that a business has on hand, while profit is a measure of financial gain over a period of time.
Here are some of the key differences between cash and profit:
1. Timing: Cash and profit are measured over different time periods. Cash represents the money a business has on hand at a given point in time, while profit is calculated over a period of time, such as a month or a year.
2. Revenue recognition: Cash is only generated when a business receives payment for its goods or services, while revenue is recognized when goods or services are sold, regardless of when payment is received. This means that a business can have revenue without cash, and vice versa.
3. Non-cash expenses: Profit is calculated by subtracting all expenses from revenue, including non-cash expenses such as depreciation. However, these expenses do not impact cash flow directly, so a business can have positive cash flow even if it is not making a profit.
4. Timing of expenses: Expenses can be paid with cash at the time they are incurred or can be paid later. This means that a business can have negative cash flow even if it is profitable, because it is paying expenses that it incurred in a previous period.
Can a business fail because they don't manage their cash?
Yes, a business can certainly fail if they don't manage their cash properly. In fact, poor cash management is one of the most common reasons that businesses fail. Here are some of the ways that not managing cash can lead to failure:
1. Running out of cash: If a business doesn't manage its cash flow properly, it can quickly run out of money to pay its bills and employees. This can lead to missed payments, defaulted loans, and even bankruptcy.
2. Inability to invest in growth: Without a strong cash position, businesses may be unable to invest in growth opportunities such as new product development, marketing, or expansion into new markets. This can lead to falling behind competitors and losing market share.
3. Poor financial performance: Poor cash management can lead to poor financial performance, including falling profits and declining revenue. This can make it difficult for a business to attract investment and grow over the long term.
4. High debt levels: If a business relies too heavily on debt to cover its expenses, it can quickly become burdened with high interest payments and struggle to keep up with repayments. This can lead to a cycle of borrowing and more debt, making it difficult to ever become financially stable.
5. Strained relationships: If a business is unable to pay its bills on time, it can strain relationships with suppliers, creditors, and employees. This can make it difficult to maintain key partnerships and retain talented employees.
In conclusion, managing cash is crucial to the success of any business. By keeping a close eye on cash flow, investing in growth opportunities, and avoiding excessive debt, businesses can maintain a strong financial position and avoid the risks of failure.
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Cash is King
In conclusion, cash truly is king in the business world. A healthy cash position is critical to the success of any business, and managing cash flow effectively is essential.
By monitoring cash flow regularly, businesses can ensure a strong cash position and stay ahead of the competition.
The phrase "cash is king" has become a popular adage in the business world, and for good reason. Cash flow is the lifeblood of any business, and having a healthy cash position is critical to success.
In this article, we'll explore the importance of cash in business and why it truly is king.
Here are a few reasons why cash is king:
1. Liquidity: Cash is the most liquid asset. It can be used to pay bills, invest in new opportunities, and meet unexpected expenses. Having a healthy cash balance can provide a cushion in times of economic uncertainty or financial distress.
2. Flexibility: Cash provides flexibility and allows a business to respond quickly to changing market conditions. With cash on hand, a business can take advantage of new opportunities or quickly pivot its strategy in response to changing circumstances.
3. Credit worthiness: A strong cash position can help a business maintain good creditworthiness. Creditors and investors prefer businesses that have a healthy cash balance as it indicates that the business is financially stable and can meet its obligations.
4. Growth: Cash is essential for business growth. It can be used to invest in new equipment, hire new employees, or expand into new markets. A business with a strong cash position has more options for growth and can take advantage of opportunities as they arise.
5. Survival: Ultimately, cash is king because it is necessary for the survival of a business. Without cash, a business cannot pay
Why is cash important?
Cash is important for a number of reasons, including:
1. Operating expenses: Cash is needed to cover the day-to-day expenses of running a business, such as payroll, rent, and utilities.
2. Investments: Cash can be used to invest in new projects, technologies, or equipment to help the business grow and stay competitive.
3. Opportunities: Having a strong cash position allows businesses to take advantage of unexpected opportunities, such as a competitor going out of business or a new market opening up.
4. Emergencies: Cash reserves can help businesses weather unexpected events, such as natural disasters, economic downturns, or supply chain disruptions.
To ensure a healthy cash position, businesses must manage their cash flow effectively.
Here are some tips for managing cash flow:
1. Monitor cash flow regularly: Keep track of all cash inflows and outflows and monitor your cash position regularly.
2. Forecast cash flow: Use forecasting tools to project cash flow for the coming weeks and months, and adjust your plans as needed.
3. Collect receivables promptly: Make sure your customers pay their bills on time, and follow up with overdue accounts.
4. Manage inventory levels: Keep inventory levels in check to avoid tying up cash in excess inventory.
5. Negotiate terms with suppliers: Negotiate favorable payment terms with suppliers to help manage cash flow.
6. Consider financing options: If you need additional cash, consider financing options such as loans or lines of credit.
In conclusion, cash truly is king in the business world. A healthy cash position is critical to the success of any business, and managing cash flow effectively is essential.
By monitoring cash flow regularly, businesses can ensure a strong cash position and stay ahead of the competition.
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Budgeting & Forecasting - it's not as easy as it used to be
The concept of budget and forecast was simple ….
Using prior year information and overlaying assumptions, historical changes, investments etc to deliver a new set up numbers for the upcoming year or years. Shareholders wanted to see an improvement and so as long as the percentage changes were going the right way then you were normally ok.
The concept of budget and forecast was simple ….
Using prior year information and overlaying assumptions, historical changes, investments etc to deliver a new set up numbers for the upcoming year or years. Shareholders wanted to see an improvement and so as long as the percentage changes were going the right way then you were normally ok.
Historical trends in all key metrics was the starting position to build the budget and forecasts and then work out what metrics you can improve, how you can improve and the timing to overlay into the budget/forecast.
Companies can take 3-6 months to prepare a budget, it’s a ridiculous amount of time, and time that should be spent executing the plan and driving a positive outcome rather than validating an excel model.
A budget should be driven from key metrics i.e. customer numbers, average revenue per customers, new customers, customer churn rate etc. Understanding what a customer generates and then costs, can ensure that the model is underlying based on key metrics. This means when you are measuring performance against the budget, you can understand why you are travelling higher or lower.
AND THEN THERE WAS COVID…
Covid landed in 2020 and developing budgets, forecasts and understanding the impact was hard if not impossible. Many businesses tried to do a forecast of where the year was going to land for FY20. The budget was useless and metrics and information that didn’t mattered, now mattered.
Companies were focused on building a forecast. CFO and finance professionals developing a forecast for an uncertain period, where history has little relevance and the future is new and therefor every uncertain. The best way to manage this would be to do scenarios that allow you a high and low scenarios and you know what the impact if each of these different book-ends happen.
Most of the forecast were wrong, as there were guesses but got the company through this uncertain period.
We are now in a getting back to normal period, post COVID (even though COVID still around) and this period is tricky…people were buying products online and now going back into stores, so the revenue from online will drop, back to pre-COVID probably not but what will be the level, how will this impact inventory levels, cashflow requirements and how the business operates.
Budgeting and forecasting has never been so difficult. Having clear business drivers and some scenarios to stress test, cash, debt and other key operating metrics and having a plan B if something occurs that was not originally expected.
It might be years, or never that we get back to the guaranteed budget that used history as the basis, but the more data and information we gather to prepare the financial modelling – budget and forecast the better.
If you are a finance person, you will smile at this article…it’s been your life for the last 3 years and it’s still impacts the way things are done.
Doing a zero-based budget, can help reset the way the business looks at the business, less reliance on prior year and resetting the cost base of the business by asking why do we need that expenditure, what is the return on investment?
There are some easy wins, and it might be what you need to balance your budget for FY24 and beyond.
Whiteark has a range of articles and resources for budgets/forecasts that we will share with you.
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If your business is having issues with cash, it's important to take proactive steps to address the problem before it becomes a crisis.