Cashflow and Maintaining Your Business Health

By Enabliser Howard

As we know, the triple holy grails of any business are:

  • Margin
  • Cashflow  and
  • Revenue/sales.

If you don’t have the cash on hand to pay expenses, no matter how good your sales, margins and efficiency and overhead control, it means trouble. Each element of the triangle needs to keep in balance for a successful business. We wanted to look at the contribution of cashflow to retaining that essential balance and keeping business health.

The Business Health Triangle: keep each in Balance

To resolve a cash shortage, the bank may provide credit, but this is an additional cost - good to avoid.  Not needing credit like this is a source of competitive advantage and impacts on margins, and most likely, sales. Every business manager knows this. At Enabling we can provide tools for your accounting/ERP solution to help manage this business lifeblood, your cashflow.

If you are short on cash, there are measures which help ensure you have enough - to pay staff, pay other expenses. The first is to plot your incoming and outgoing cash, your cashflow forecast.  This will show if a problem is looming, provide insights into business peaks and troughs, and hopefully allow you to take corrective measures before too late. The incoming cash forecast at a basic level, includes cash on hand, and revenue from sales, interest, investment. From this, deduct your outgoings, regular expenses, taxation, and any other predicted expenses, including capital expenditure.  The amount remaining is your net cash. If you examine your forecast, check if there is a shortfall between when you should be paid and when you are paid.

If you can bring customers’ payments forward it may be enough to ease the pressure. This may include changing your payment terms, or reducing your days outstanding by contacting slow paying customers sooner, or dividing large sums due - into smaller regular amounts, or arranging automated payments from customers. Don’t forget billing too. If you can issue invoices sooner, more efficiently, the results flow through your company too. It’s possible. This is one of the many benefits of an integrated ERP/accounting solution.

In addition to these cash-related measures there is also sales, where efficient preparation of quotes and sales processes, and inventory management, improve your efficiency, improve your whole business.

We hope the simple measures above remind you of these basic steps to maintain cash flow, and that your accounting/ERP solution is making its contribution too, from efficient inventory control and no-delay invoicing to reports, analysis and forecasting tools. There are tools to assist collections, including automated reminders and alerts, and making sure your Order Entry team know when customers are running over credit  limit. This allows them to ask for payment before more orders are placed.  An ERP/accounting system has many tools to help businesses run better.  At Enabling we can assist with your business efficiency and a robust Business Health triangle.

To Learn more, or speak to an Enabling Trusted Advisor, click here

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