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Dollars and sense – Switzer’s tips for healthy cash flow

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When it comes to business cash flow, business owners need to arm themselves with the right information and advice and there is no time better than now. 

A taxing issue

We always talk about planning in business, and a sub-set of great importance is tax planning, which is such a relevant cash flow issue.

The failure to ask the right question of the relevant professional can result in a long period of overpayment of taxes, lost investment opportunities and even mistakes that could put you in trouble with the law.

There are many business owners out there who have accessed their self-managed super funds for cash when their businesses encountered cash flow problems. This is not only a crime, it can render the fund non-compliant, which takes away the tax concessions that go with a super fund.

Seeking a trustworthy, competent tax adviser should be the top item in a small business person’s to-do list.

I've said it before and I will say it again: if there's anything worth doing, it's worth doing for money. It's a false economy to avoid accounting bills in order to save money. 

Budget beaters

Do a cash flow statement and review it regularly – once a month or more if you’re going through a cash crisis. Without cash, even a profitable business can go bankrupt. To get a better picture of your business, prepare three budgets:

  • Budgeted profit and loss
  • Budgeted balance sheet
  • Budgeted cash flow statement.
The key requirements in preparing a budget are:
  • To link the budget into your strategic plan
  • The financial parameters/objectives from the strategic plan
  • To include the sales forecast
  • To include relevant intelligence about the business, customers, competitors and the industry
  • To include relevant market research
  • To include information from suppliers.

Budgeted cash flow statements allow a business to measure its working capital or cash and to calculate the finance requirements at a particular point in time. This can lead to a more correct calculation of borrowing costs or help a business determine in advance whether it wants to borrow money or seek finance from different sources (for example, other investors).

An operating budget is the annual budget of an activity containing estimates of the total value of resources required for the performance of the operation.

If you only have a budgeted profit and loss statement or an operational budget, without a budgeted balance sheet and cash flow statements, you’re only looking at part of the picture.

Accountants say that this could put your business at risk as there is no check on what particular strains a profit and loss budget will put on the business’s working capital and existing bank facilities.

Where do you sit?
What best describes your cash flow situation?
  • Money is too tight to mention, I’m beginning to wonder if my business will survive.
  • My tight cash flow situation means suppliers are chasing me for money while I am waiting for my clients to pay.
  • Lack of access to cash means I’m unable to invest in marketing and advertising opportunities that may help my business in the long run.
  • Cash flow is tight but we manage to get by.
  • Cash flow is a strength of my business.

Depending on your answers above, take action now to put your business on a firm footing.

So, 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

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice. 

Published on: Tuesday, May 11, 2010

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