One of the major issues facing small to medium NZ businesses right now is cashflow.
Good cashflow is critical to the success of any business. Although it’s affected by many issues the key seems to be the downturn in sales a lot of businesses are experiencing. It doesn’t take much of a dip in cashflow to cause problems. Sometimes, dependent on how “highly geared” you are, a drop of even 10% can mean serious trouble.
If your business has high borrowings you may be particularly affected. And if you’re stuck with high interest rates and your home is at risk if you go belly up,you might be feeling slightly uncomfortable at this point. It’s not a good position to be in.
There are ways to avoid all of this. You could work out another deal with your banker, or change banks, getting a lower interest rate and perhaps structuring your borrowings so in effect you become your own banker.
But the real key to all of this is keeping both eyes on your cashflow. This is simple, straightforward and essential if you’re going to maintain liquidity and profitably in turbulent times. Use the reports available through your accounting software – even an excel spreadsheet can provide a simple cashflow forecast that will do the trick. There’s no excuse for not having this information available at your finger tips – on a daily basis if necessary.
Make sure you forecast your cashflow well in advance – at least 8 weeks, with 13 weeks being the optimum. Keep constantly abreast of what’s happening with your cashflow. Look at all your expected income and outgoings on a weekly basis and compare them to the actual results. This will quickly highlight any issues and give you early warning signals for any potential problems, so you can deal with them before they eventuate. You must be ready to react effectively and efficiently to those warning signs.
Keep a close eye on your creditors. Don’t be afraid to ring your “best” customer if their payments are dragging a bit. It’s particularly vital to keep up the “pay on time” culture. If you let it slide the problem may increase two-fold (or more) and you’ll end up in a situation neither you nor your “best” customer wants to be in.
Remember, in this economy one of the most important things you need to do is be ready and willing to adapt. Equally important you need to keep your eyes on the numbers, forecast your cashflow well in advance and keep your creditors current.