Maintain your Business Strong and Healthy during uncertain times.

26 Nov 12

"Cash Position

Cash flow is crucial to all businesses, but none more so than those businesses whose products or services have seasonal highs and lows to manage.

Seasonality is a challenge facing many industries such as agriculture, manufacturing, retail, service and tourism industries to name a few.

For businesses selling products, stock coverage can be required for a three-month season, while some industries requires stock coverage of up to three years, especially in cases where a product is both grown and manufactured.

For a business to survive during difficult times, cash is the king. Cash is the life blood of business. Businesses will need to focus on their cash requirements, review its overdraft facilities for adequacy and make appropriate arrangements with the bank for a more adequate financial support.

Cash Planning and Forecasting

Putting in place a cash plan, whether from month to month or year to year, is the finishing factor for all budgets.

With a cash plan you will know where the shortfalls are, and have the opportunity to deal with this.  There is often room to alter the timing of major expenses or to select financial option that suit the nature of the business and its seasons, looking a varied repayments to suit the business cycles.

Cash Management

To mange cash, it is vital to keep tabs on cash inflow, just as it is to control outflow. It is essential for businesses to manage debtors well.

Remember, debtors represent money belonging to the business – money that is sitting in someone else’s bank account. In uncertain times, the business must have a robust credit control policies, give discounts to encourage prompt or early payments and send remainders on an ongoing basis.

Stock

Determine the levels of stock required for operating the business at an optimal or efficient level. Too little stock means the business could be caught short; however, too much stock means cash is tied up unnecessarily.

To ensure stock levels are as optimal as possible, management should review turnover levels which will provide information about when stock should be re-ordered, clear any obsolete or slow moving stock as soon as possible and review the distributions strategies.

Tips for managing cashflow

1. Prepare realistic budgets and cashflow, with alternative scenarios.
2. Review budget performance on a regular basis and revise cash forecasts
3. Implement purchasing controls and formally communicate to staff
4. Follow up debtors religiously and have clear guidelines for the provision of credit.

1. Document plans of when stock needs to be purchase and/or manufactured
2. Written procedures for all stock movements and stocktakes
3. Establish systems to measure and report stock losses and giveaways
4. Research product cost used in plans before production/sales start.