"Hello, Mr Banker, we're out of cash again…"

Cash is King.  Cash is the lifeblood of your business.  Lack of cash is the most common cause of company failure in Australia; in fact, in the 2016 financial year, 45.6% of company failures were due to this reason.

We all know how important cashflow is, but what do we really do about it? Do we actively manage it and plan for an outcome, or do we sit by, watch it flow in and out, and hope for the best?

You have probably all heard the adage, 'failing to plan is planning to fail', and this applies to cashflow as much as it does to everything else in life. Everyone does sales projections, and some people do expense budgets but sadly the cashflow forecast often gets pushed into the too-hard basket.

After all, how can you plan for customers who pay anywhere from COD to 90 days after invoice? How are you supposed to know if you'll run out of stock in three months' time, and might need to pay cash on order to your local supplier to buy more stock before your regular shipment arrives from Vietnam?

The trouble is, you don't! However, a good cashflow forecast based on accurate assumptions, and proper double entry accounting principles, will give you the best chance of managing the cash requirements related to these unpredictable events.

By working through a cashflow forecasting exercise you will be forced to:

·        Create a forecast of sales for the forecast period

·        Estimate your cost of sales (this can be tied back to an estimated gross profit)

·        Budget for your expenses

·        Think about what personal expenses you have planned

         (that will be funded with cash from the business)

·        Do a realistic assessment of what capital expenditure will be required

         (the new Land Rover Discovery, and the flash office refurbishment), and

·        Last, but not least, estimate your tax bills.

The benefits of an accurate cashflow forecast are threefold:

·        You have a financial roadmap for the next one to two years

         (we recommend forecasting at least the next full financial year)

         with which you can drive performance and keep your staff accountable

·        You can compare your actual performance against your roadmap,

         identify where things are getting out of control, and manage them accordingly, and

·        You will identify any:

    o     Opportunities arising from strong cash generation (maybe setting up the US branch is possible after all!)

    o     Periods of tight cashflow ahead of time , so you can make appropriate arrangements with your bank or other financiers  well in advance (they will LOVE this!).

So don't bury your head in the sand anymore! Grit your teeth, arm yourself with a calculator, paper and pen (or Excel spreadsheet) and get on with it.  Who knows, it may not be as hard as you think!

At KDA Group we're all about helping you to maximise your potential, and this includes your cashflow.  If you think you might need some assistance, we're only a phone call away on 02 4861 8383.