Getting a handle on the 3 crucial pillars impacting cash position
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The 3 crucial pillars that impact cash position?
When doing a ‘business health check’ with his clients, Chartered Accountant at Hailston + Co Chartered Accountants , Dimitri M. always starts by taking stock of where the business is in terms of its cash position.?
Cash is the central focus for any business, impacted and supported by three legs:?
If one leg is faulty or breaks, the chair falls over. So, all three must be considered to optimise business performance and limit issues impacting cash.?
How can you measure these three legs??
1. Profit?
A revenue chart sorted by rolling average to see year-on-year growth is a clear and simple way to display the growth or decline of a business.?
2. Working Capital??
Debtor days can explain cash position fluctuations and point towards potential solutions.??
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3. Assets, Loans & Drawings?
Looking at the cash flow statement and asking questions such as ‘how lean are assets?’, ‘how many assets are being purchased?’ or, conversely, ‘are not enough assets being purchased’ and ‘are loan repayments and debt being responsibly managed?’ or ‘are too many drawings being taken out of the business?’.?
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Watch the full video of the conversation with Dimitri here.
3 ways cash flow forecasts can help businesses in need?
Head of Advisory at Johnston Carmichael Chartered Accountants and Business Advisers , Ewan Bolt , gives us the inside track.?
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1. Businesses recovering from a challenging trading period?
“A business recovering from a challenging trading period might need guidance on enhancing performance and securing a crucial cash boost.? Cash flow forecasting plays a pivotal role in navigating such scenarios.”??
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2. Expanding businesses looking to secure funding??
“For example, a client aspiring to acquire a guest house and seeking funding from a mainstream bank must present a formal business plan and cash flow forecast in the right format. Tools like Fathom give businesses comprehensive financial analyses, optimising the chances of securing the necessary funds and ultimately successful loan applications.”??
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3. Mature businesses looking at growth options??
“As businesses mature and explore growth opportunities, tracking cash flow becomes crucial. Consider a scenario where a company plans acquisitions or diversifies its product and service offerings. Monitoring the cash impact of these changes helps ensure adequate funding when needed, and it provides insights into managing positive and negative cash variations effectively.”??
?? See you next month,
Team Fathom.?
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We build and interpret dynamic forecasts that help businesses stay on track to hit their financial goals sooner.
1 年Super helpful to simplify where to better understand cash--here are some levers I put on a 2x2 grid (based on size of impact on cash and the speed at which cash can move):