How to Monitor Your Cash Flow Effectively

It is undeniable that cash is the lifeblood of any business, however, sometimes there is too much emphasis placed on being profitable that businesses start to lose sight of this crucial fact.

Yes, profit is important but if you have poor cash flow management, even a growing or profitable company could be at risk of shutting down. This danger is more significant for businesses that are looking to expand.

This is because if billing is delayed while inventory is increased to meet rising demand, businesses could find themselves in a position where they do not have the cash needed to pay suppliers and employees.

The Advantages of Cash Flow Projections

A cash flow projection involves predicting the income and expenses expected over a specific period. These projections are essential, especially when challenging times arise. The goal is not to wait for a crisis to start planning, which is why these projections help. A well-prepared cash flow projection helps a business anticipate and prepare for any potential cash shortages in the coming months.

Effective cash flow management also allows you to:

• Ensure you have enough cash reserves to cover expenses, business expansion, and investments in facilities and product development.
• Reduce interest costs by borrowing strategically. Benefit from discounts by making bulk purchases.
• Enhance your connection with your bank manager.

Regularly preparing cash flow projections can help businesses gain valuable insights into their operations and help them identify areas for improvement. For example, you might realise the need to better manage certain customer relationships or find opportunities to defer payments to suppliers more effectively.

Cash Flow Checklist

We have developed a cash flow checklist that helps you maintain a healthy cash flow as well as remain profitable.

Read the questions below and answer either yes or no to each statement in order to determine if your business could be experiencing cash flow problems. If most of your answers are ‘no’, this may be an indication that you are in need of specialist advice. If this is the case, we encourage you to get in touch with us so we can assist you with a cash flow strategy.

20 questions to answers:

1. When we take on a job, we are confident we can complete it and be paid on our terms.
2. We issue an invoice immediately upon completing a job.
3. Our invoicing documents are accurate, complete, and clear.
4. Our credit procedures alert us to problematic customers so we can follow up on overdue accounts.
5. We enforce our credit terms and require deposits from customers who are considered a credit risk.
6. We finance capital expenditures in the most cost-effective way.
7. Our pricing reflects the time spent on jobs and accounts for associated risks.
8. Our employees understand the importance of the company’s cash flow.
9. We complete work efficiently.
10. We catch mistakes before they reach our customers.
11. Mistakes lead us to improve our processes.
12. We closely monitor budgets throughout the year.
13. We assess the feasibility of outsourcing work.
14. We have adequate controls in place to manage employee overtime.
15. We effectively negotiate contracts for materials and supplies.
16. We forecast cash flow monthly and align our financial arrangements with these projections.
17. Our bank is a partner that understands our business and its financial needs.
18. We ensure work is done by the most cost-effective, qualified employee.
19. We link employee compensation to productivity and company profits.
20. Our standard operating procedures are documented, and everyone follows them.

Contact us for information on how we can assist you and your organisation.

https://www.rockcsp.com/contact-us