This post is one in a series designed to help SME businesses benchmark their business and create a best practice business improvement plan across all of their business processes. You can find the links to the full series here.
Why is effective cashflow management essential to a successful profitable business?
Cash is critical to business success. While our focus might be on making sales and profit, if this is not translated into cash, our business will go down. 40% of business failures are due to lack of cash.
We need cash to pay our staff on time and keep them happy. We also need to pay our material suppliers, otherwise they may not deliver the items we need to get a job completed.
Having enough cash in the bank means that cashflow problems do not become a distraction which takes us away from other important issues of running the business.
How does your business measure up?
Review your business against this best practice benchmark now
BEST PRACTICE BENCHMARK: Our financial management processes ensure that we always have sufficient funds available to comfortably manage day to day operations, deal with unforeseen emergencies and budget for future developments. #Financial-Management #Risk
Here’s a checklist to help you determine how well your business is managing cashflow.
- We raise sales invoices promptly after completion of work.
- We only purchase stock when we have a high degree of certainty that it will be used promptly for client work or resale.
- We have clear terms and conditions on our sales contracts which include expectations for customer payment.
- We ensure that we have the appropriate customer approval for work performed.
- We prepare cashflow forecasts monthly to ensure that we have no surprises when there is a funding shortfall.
- We have access to short term funding if we have a cash shortfall.
- We have a clear process to follow up outstanding debts.
- We take steps to slow down the rate of cash payments wherever possible.
About the SMART-Connect best practice financial management advisor
Financial Management Advisor and CFO
Robin Snelling is a Virtual Chief Financial Officer or CFO, with 40 years of corporate and small business experience. He's passionate about creating reports which reveal the guts of the business – which sections are inefficient, what product groups are most profitable, what sales channels are performing, which customer markets give the best return.
Robin is a founding member of the Association of Virtual CFOs, which has the goal of promoting the benefits of this relatively new industry to SMBs.
Robin is currently working on the development of Informer 4 SMB software, a unique cloud solution which provides automated financial analysis of profitability and cash requirements for SMBs. This software will make management reporting far more accessible to SMBs