I am yet to work with a business where I have found they are flush with cash and don’t need to keep a very close eye on it.  Those who have extra cash usually use it for other productive purposes anyway.  For every other business, it is a consistent source of stress –  things are going well but I’m struggling to pay all my bills?  If this is you, you are not alone.

As with anything in business, if it were easy and obvious, business owners would be doing it.  The management of the cash coming into and out of the business (i.e. your Cash Flow) requires continual focus and management.

So, what to do about it?  Here are a few points.

• If the business is not profitable there is no cash management strategy that will solve this. Your %Gross Profit must be high enough to cover fixed costs and debt repayments (Learn more about %GP here). If you are profitable that does not remove the cash flow challenge as the profit is recorded when you invoice - not when the money hits the bank account.
• Understand what your true break-even sales level is each month. This is not just the break even to cover fixed costs but to have enough money left after tax to pay off loans and pay the owners (if they don’t get a wage)
• Take every option you can to get paid in cash (i.e. credit card or EFTPOS)
• If you offer customers credit make sure your terms of trade are clear and you check the references of the customer.
• Never give people extended credit terms – you are not a bank. 
• Some large corporate customers may demand extended terms. These people could send you broke. Don’t be afraid to say NO and walk away or ask for more to cover financing costs.
• If a person is late paying act immediately and have a process that you follow thereafter until you are paid – again, you are not their bank.
• Know when to bring the debt collectors in. Everyone is different but be prepared to do it.
• Try and get the best terms you can from suppliers.
• Pay on time when you can. When you can’t talk openly and honestly with your suppliers You may have to call on favours from them when you can’t and they may show more patience if they know what is happening.
• Assess what cash you need in the bank each month to pay for all purchases (cost of sales), replacement of stock, wages and other fixed costs (i.e. this is your working capital).  If you don’t have that cash you may have no choice but to get a working capital facility from your bank (e.g. an overdraft)
• Sell old or slow moving stock. The discount you offer may be cheaper than the overdraft to pay the bills.
• If you buy large equipment (such as a vehicle) avoid taking it from cash reserves – while avoiding a loan may seem good it makes no sense if the next few months mean you are paying wages from your overdraft at very high interest rates.
• Make sure your overdraft or line of credit with the bank is large enough for your business. If it’s too small and you hit your limits on pay day your stress levels will escalate - and the bank may not help.
• Take a percentage out of all sales for GST and know when and how much your provisional tax is.  If your accountant can’t help you with your tax get a new accountant as this is the minimum they should be doing for you!!
• If you get behind on IRD act immediately. The IRD are showing far less patience now and will hit you with interest and penalties.
• If you get into and cash trouble act immediately. Talk to debtors, creditors, the bank and the IRD and see what options you have. 
• If you are in more serious cash trouble see if you can get cash for assets like a car you own and put it on finance. Get a good business broker. Not desirable but better than closing the business.
• Know what is coming in and out of the bank account all the time  How often will depend how tight things are. Most business check it daily - we do!!!

All the best.

By Bob Weir,  July 2018