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Cash flow – Switzer’s guide to getting it right

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We all need day-to-day money for running the business. Even as we move towards a cashless society, any business keen on avoiding an untimely end must have good cash flow. You need to understand the impact of a cash flow gap (that is, the time between cash going out and cash coming in). Your business can be profitable but if you don’t have enough cash coming in regularly to meet your expenses then you will quickly go out of business.

The financial business of your business

Generally, to avoid a cash hiccup you have to know what is happening with operating expenses, overheads, stock levels, debt collections and your profits.

A growing business is likely to cause a dent in your cash flow, but careful money management will help ease the growing pains. Accept this maxim: like building a house, growing a business will always cost you more than you think. There are so many costs for any growing business, but the three big ones are – wages, rent and marketing. You should throw in tax as well, which can easily take 30 per cent from your profit.

The point about many of these costs is that they can get out of control, but a firm hand is needed to prevent this. If being firm is not your strength, find someone who counts it as one of theirs. Ultimately, it’s down to your management. In tracking down these costs of growth, let’s start at the beginning. If cash flow worries keep you awake at night, learning about better cash flow management could be the best sedative. 

Cutting costs

When a cash crisis occurs due to a growth spurt in your business or because you haven’t yet put down the foundations to manage cash effectively, there are things you can do from a cost and revenue position.

Cutting costs can only be done up to a point – and you have to be careful.

Taking the knife to costs too quickly can mean you cut things in your business you need the most. These items could be advice from your accountant or business coach, aspects of your marketing or your much-needed insurance.

So, while trimming costs is important, it’s wise not to be too heavy-handed or to make rash decisions. While cost cutting may provide you with temporary relief, it will most likely cause you problems down the track. 

Extract from Cash flow; Switzer’s guide to getting it right. Read it now – the must-read book to keep your business in the black.

If you’re looking to work on your business rather than being stuck in it, book in for a complimentary business assessment today with Switzer Business Coaching

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Published on: Wednesday, February 02, 2011

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