Ask the experts

Do you have a burning question that you would like the answer to? Or maybe you’re looking for some advice to help your business? In each edition some questions will be shared and answered by some of The Business Bulletin experts.

If you have a question – then email us and these experts will set about answering it for you. It can be on any business topic you like, be it finance, sales, marketing, operations, resources, strategy or personal development.

If you would like a more immediate response, then raise your question on the “Ask The Expert” forum.

Q. What is cashflow and how do I go about managing it?

A. Cashflow as the name suggests is the money that flows in and out of your business each month. If the cash coming in is greater than the cash going out, your business is probably in good financial health. In short, by looking at cash inflows and outflows across a certain period, you can see precisely where cash has been generated and where cash has been spent. Cashflow should not, however, be confused with your profit, which is the surplus you’re left with at the end of accounting period.

When companies start to look at cashflow in more detail, it is generally broken down into three areas, namely operating, investing and financing activities. Here’s a quick look of what that would mean in practice from the perspective of a local garage.

Operating cashflow: Cash received or spent through a company’s main business activities, in the case of the garage this would be for the MOT’s, servicing and repairs. The money spent on parts, labour etc, compared to the money charged to the customer.

Investing cashflow: Cash received or spent through investing activities, like assets such as high value tools and equipment purchased for use in the business or investments in other business ventures.

Financing cashflow: Cash received through debt (customers with credit accounts with the garage) or paid out as debt repayment, such as a business loan.

Whether transactions are entered manually on a spreadsheet or using accounting software the end result is a pool of financial data which reveals cash situation of your business.

Wendy Tate Bean Counters

Q. How can I better manage my finances? I currently use a spreadsheet to manage my business, are there any free to low cost accounts software packages I could use?

A. Yes, there is some great new technology out there and its not too expensive when you put it into context and the time it will save you. You probably should look at not just an accounting package but add on applications. Most people have now heard of Quickbooks Online and XERO and accountants will be able to recommend what’s good for you. They are likely to have access to “partner editions” which are cheaper that the standard licences. They will also be able to recommend bolt-on applications such as Fluidly which will give you three months cashflow projections at no extra cost.

The joy nowadays is the integration with other software so you can go paperless. For example many property landlords use Arthur which integrates with Xero and Quickbooks and exchanges data both ways. All of a sudden they can have effectively a CRM system issuing tenancy agreements, sending out rent invoices and chasers whilst reporting on profitability per building. The day of the metal filing cabinet has gone!

Q. I need to cut costs in my business – where do I start?

A. I’d always look at going for the big wins first. Where do you spend the most money? Have you approached other suppliers for quotes? When contracts are due for renewal, shop around to get the best deals. Look through everything you pay out – do you still use everything you are paying for? If you don’t use it or it adds no value, get rid!

Ruth Chettle - Canary Accounting

A. I would recommend sitting down and thinking to yourself, if I was to start again what do I actually need to trade. For example: Do I need a computer? Probably yes, but do I need that subscription or is it a luxury?

Once you have identified what you definitely need think about using an expert to source the product/service. Your time is valuable and someone doing it every day is likely to get the best deal more quickly.

Roger Eddowes - Essendon Accounts & Tax

Q. What finance KPIs should I be measuring?

A. The key ones for me would be sales, gross profit and net profit. Then I would be looking at more specific ones for your business. Examples might include:

Sales mix which products or services do your sales come from? Is that because you market the popular ones more or people aren’t interested in your other items?

Gross profit per sales items – if you have a few products I would want to look at the gross profit of each. This will help decision making to see what makes you the most/least.

Likewise if you have different locations you might want to track how each location is performing. If you have stock I would be looking at how much stock is being held, how quickly you can turn stock into sales and how much dead stock is being held.

My final and most important one is cash. Keeping an eye on cash levels and upcoming cash requirements can make or break a business.

Ruth Chettle - Canary Accounting Canary Accounting