Its all about cashflow. Talk to a business ‘expert’ or management consultant, growth advisor or anyone advising a business on finances and the explanation of cashflow and its importance ranges from the simple to needlessly complex. To me, it’s simple: do you have enough cash in your bank (or mattress, if that’s how you roll) to pay next week/next period’s bills and continue servicing customers.
So, how do businesses answer this question?
In more ways than I had originally expected! I’ve spoken to hundreds of businesses of different size and sector in the US, UK, Canada, Europe, Australia, New Zealand and some emerging markets, to find out out how they manage cashflow.
Many just focus on tracking sales and expenses, check the bank and make a resolution to get better organized. Others combine paper and pen with spread sheets and increasingly, their accounting application. Accounting applications allow for cashflow analysis and budgeting, but they’re not as effective in answering the key cashflow question. Spreadsheets are still powerful for complex financial analysis and reporting. But for most businesses, they can take up a lot of time.
Apply for a loan, and a lender will probably ask for your proforma income and expense statement, balance sheet and cashflow projections. Some lenders ask for a statement of cashflows, which tracks cashflow movement, rather than monitor ability to pay bills on a particular day.
Talk to your accountant about spending to upgrade capacity to fill a new order or service new customers/markets, and you’ll end up talking about cost/benefit and cashflow impact.
If you’re fortunate enough to get paid up front by credit card, you pay a few percent for the convenience to not have to chase receivables. Sell to larger corporate buyers who take 60+ days to pay you and, yes, you have to be very mindful of cashflow!
Profit keeps score of your business model, tracking how your revenues exceed expenses. Cashflow is what allows you to keep going. It’s your bills paid, your payroll, rent and everything that allows you to keep your customers happy. And happy, paying customers keep you in business! It’s simple, it’s obvious, and it’s critical. Businesses don’t talk about it much but it is a big deal!
Bilbus Cashflow Hub saves you hours managing receivables and cashflow every week. Automating invoice follow up and cash scenarios to improve cashflow predictability. Cashflow Hub integrates with Xero and QuickBooks Online while also manually importing from your favourite spreadsheet applications.