The Perfect Storm – Why is Cashflow so important?

“Cash is King” – we’ve heard the term and while it has been used in many financial and corporate contexts, in small business it highlights the importance of cash as an asset for short term purchases and operations.

“The Perfect Storm” – another phrase we are all familiar with. A disastrous situation caused by the coming together of many forces at the same time and with lack of concern, resulting in overwhelm and disaster.

The lack of cashflow risks the perfect storm

Cashflow can be even more important than revenue or profit. With a solid cashflow, your ability to predict the cashflow of your business can highlight cashflow crunches even before they happen. The ability to look 3-6 months in advance to predict a shortfall can mean the difference between weathering the storm or succumbing to the perfect storm!

Why you need a cashflow!

1. Cash really is king!

An overall positive cashflow points to a successful business.

Read in conjunction with your financial reports, a solid cashflow forecast assists with lending requirements such as purchasing plant and equipment, taking on staff members or moving premises.

2. Avoid late payment penalties

Keeping your business cashflow positive with available cash to pay your liabilities, decreases the chance of being charged extra penalties from suppliers, overdraft interest, ATO late penalties and interest, and superannuation charge statements.

3. Optimal decision making

Are you expanding or are you selling? With a robust cashflow forecast, your ability to pinpoint the time to expand or sell is highlighted, giving you confidence and power in your ultimate decision.

A thorough and robust cashflow forecast will prevent the perfect storm!

Susan Carson