E V O LV E A C C O U N T I N G
THE REAL REASONS
you have no cash
ow you generate revenue (how many •H customers, average spend, etc).
Are you sick of worrying about paying your bills and still having enough money to pay your GST and tax?
ou aren’t making enough profit (note 1. Y there is a difference between profit and cash).
This is a common complaint from small business owners who universally find lack of cash to be one of the toughest issues to overcome.
2. You aren’t collecting the cash owed to you.
ow much are your COGS or Direct Costs •H (in percentages).
3. You are taking too much money out of the business for yourself.
ow much do you spend on variable and •H non-variable overheads (in percentages).
4. Y ou don’t have enough working capital in the business.
This will let you prove that your business is or can be profitable and is also scalable. Sometimes it will point out glaring issues in your business, prompting you to make changes and tweak things until they work. Ultimately it will help ensure you have adequate profit to achieve a healthy cash flow.
Cash flow budgets are a fantastic tool that we love and recommend you use, but they only help manage the problem; they rarely fix anything. If you aren’t working on addressing the real underlying problem, your business will continue to suffer, regardless of how well you manage your cash. If you have problems with a lack of cash, it’s because there is a deeper issue that needs addressing. Something isn’t right in your business and once you find out what that is and fix it, your cash flow problems will disappear. Think about it this way - being short of cash isn’t actually the problem, it’s a symptom caused by the real problem. Most of the time, insufficient cash happens for at least one of the following reasons:
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In businesses that carry stock, there is a fifth reason: ou are holding too much stock (think of 5. Y your stock as $50 notes on your shelves). I guarantee that these are the real underlying problems in your business. Each of them can result in having a lack of cash, and it doesn’t matter how well you plan your cashflow – until you identify why it’s being restricted, it will never be any better. Let’s talk about what you need to do. 1. E xamine your business model. Your business model is a short and simple document that demonstrates how your business can make profit. It covers the following:
2. Systemise and automate Accounts Receivable. There are some great software apps that will link with your accounting software to automate the reminder and collection process. They have proven to be effective, especially in reminding customers when they must pay and then following up immediately after payment is due. You should always monitor your accounts payable, even when you have an automated
