Cash Flow is King
Author: Stephen Shirley, DBSN Group
Last month I spoke about budgeting and the necessity for it in the financial control of your business. Some of you may have acted and completed your budget for the coming financial year, if you have well done.
If you haven’t started your budget yet, that is ok provided you have scheduled in time in the next couple of weeks to sit down and prepare your budget for the coming financial year.
If you haven’t scheduled time, then stop now and set aside a day and time when you will prepare your budget, call your accountant if you need some assistance in getting the job done. Do not discount the importance of preparing your profit budget – remember running a business without a budget is like sailing a ship without a rudder.
Today I would like to discuss the most important factor to your liquidity, cash flow and how this function is one of the most critical aspects in operating your business. In managing cash flow it is important to prepare a cash flow budget which predicts your cash position on a month to month basis.
The cash flow budget is more complex in its preparation than the profitability budget and is usually prepared with the assistance of your accountant. As stated the benefit of the cash flow budget is to determine and predict the cash position of your business on a month by month basis for the coming financial year. This in turn allows you to determine whether there are sufficient funds available to sustain your business’s needs together with your personal drawings to live on.
The cash flow budget helps you access the risks in your business:
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to determine at what times of the year your cash outflows may exceed your cash inflows,
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whether a working capital requirement exists in your business,
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the impact of seasonal fluctuations,
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the impact of tax instalments and year end tax payments, and
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debt servicing.
With the preparation of the cash flow budget your are in a position of being able to perform sensitivity analysis on your business to determine the impacts to your business if your cash flow budget is not achieved, or your are impacted by seasonal variances.
This places you in a position of control and understanding with respect to your business and what short term decisions you need to take to ensure the cash flow health of your business.
By preparing a cash flow budget you allow yourself to be in a position where you can determine what steps you can adopt to improve the cash position of your business and also to assess what risk strategies you can adopt should the cash flow not go according to plan.
Act now in preparing to succeed in your business, talk to your accountant as to how you can plan to succeed through the use of financial and informative control tools by preparing both a profit budget and a cash flow budget………..Good luck
Stephen Shirley
B Comm, F C A
Managing Director
PO Box 5173, Maroochydore, QLD, 4558
Office: (07) 5443 5977
Fax: (07) 5443 7833
Mobile: 0400 6444 73
E-mail:
stephen@dbsngroup.com.au
Web:
www.dbsngroup.com.au
