Brendan
24-06-08, 08:50 PM
I found a great article over at news.com.au - ( Failing to plan is planning to fail | NEWS.com.au Business (http://www.news.com.au/business/story/0,23636,23906993-5012428,00.html) )
CASH is the oxygen that keeps a business alive.
So keeping track of your monthly cash flow is critical if the business is in respiratory arrest and in need of reviving.
It is essential, when you know you are in tough times, to know how bad it really is.
Successful businesses plan for growth and regularly measure performance in order to be strategically placed to respond to both up and down markets.
While the mining sector and associated services keep growing, some retailers and tourism operators are bleeding.
Ian Judson, director of privately held business services at international accountancy firm Grant Thornton, says SMEs are the engine room of our economy and need to be strong.
Copying the actions of competitors may not work and a close look at your own operation is required.
"Any actions by the business owner in response to hard times need to be planned."
He says you can stem your losses and ride out tough times if you implement five key points.
1. Credit crunch
With existing customers -- enforce invoice payment terms strictly. For new customers, extend credit only after completing due process.
2. Overhead overload
Remove discretionary items not fundamental to business operations or seek cheaper alternatives.
3. Payroll check
Review staffing, the hours and duties performed by employees and see if a cheaper mix of workers is available to deliver the same outcomes for customers.
4. Don't stock up
Order stock to better match your orders or work on hand. Don't stock-up unnecessarily.
5. Cash count
Ensure you monitor your cash position daily. This simple routine will generally cause efficiencies to be automatically created. In any business, cash is like oxygen.
When owners find themselves in a retracting market, act with no delay.
"Business owners that ride out good times and bad, have a good budget in place," says Mr Judson, a Brisbane-based accountant. "When things are tight it always comes back to cash flow and if you can break it down, do a monthly cash flow.
"That way you can keep track of how you are travelling rather than just waiting for your accountant to finish off your end-of-year books to let you know how you are going. A lot of business owners do operate purely out of their back account and think 'we've got money in the bank and everything's fine' and don't appreciate what commitments are coming up."
Those owners may not have anticipated a big GST payment coming.
Mr Judson says owners should be about to predict with a reasonable amount of certainty what is coming up in terms of revenue.
"So if you do detect that things are not going well, like some retailers I've heard are down 20-30 per cent on last year, then do a rolling monthly cash flow statement to try and get through," he says.
He says business owners need the right data "as you cannot make the decisions without data".
"Planning is key and a cash flow budget in tough times is the main tool to use to overcome the lull," Mr Judson says. "And get some good data to make informed decisions, before others do it for you. The critical aspect for the owner is to respond to the situation within their own market and not that of other industries."
Tighten the belt
• Enforce invoice payment terms strictly
• Remove discretionary items not fundamental
• Review hours and duties of staff
• Don't stock up
• Cash count
CASH is the oxygen that keeps a business alive.
So keeping track of your monthly cash flow is critical if the business is in respiratory arrest and in need of reviving.
It is essential, when you know you are in tough times, to know how bad it really is.
Successful businesses plan for growth and regularly measure performance in order to be strategically placed to respond to both up and down markets.
While the mining sector and associated services keep growing, some retailers and tourism operators are bleeding.
Ian Judson, director of privately held business services at international accountancy firm Grant Thornton, says SMEs are the engine room of our economy and need to be strong.
Copying the actions of competitors may not work and a close look at your own operation is required.
"Any actions by the business owner in response to hard times need to be planned."
He says you can stem your losses and ride out tough times if you implement five key points.
1. Credit crunch
With existing customers -- enforce invoice payment terms strictly. For new customers, extend credit only after completing due process.
2. Overhead overload
Remove discretionary items not fundamental to business operations or seek cheaper alternatives.
3. Payroll check
Review staffing, the hours and duties performed by employees and see if a cheaper mix of workers is available to deliver the same outcomes for customers.
4. Don't stock up
Order stock to better match your orders or work on hand. Don't stock-up unnecessarily.
5. Cash count
Ensure you monitor your cash position daily. This simple routine will generally cause efficiencies to be automatically created. In any business, cash is like oxygen.
When owners find themselves in a retracting market, act with no delay.
"Business owners that ride out good times and bad, have a good budget in place," says Mr Judson, a Brisbane-based accountant. "When things are tight it always comes back to cash flow and if you can break it down, do a monthly cash flow.
"That way you can keep track of how you are travelling rather than just waiting for your accountant to finish off your end-of-year books to let you know how you are going. A lot of business owners do operate purely out of their back account and think 'we've got money in the bank and everything's fine' and don't appreciate what commitments are coming up."
Those owners may not have anticipated a big GST payment coming.
Mr Judson says owners should be about to predict with a reasonable amount of certainty what is coming up in terms of revenue.
"So if you do detect that things are not going well, like some retailers I've heard are down 20-30 per cent on last year, then do a rolling monthly cash flow statement to try and get through," he says.
He says business owners need the right data "as you cannot make the decisions without data".
"Planning is key and a cash flow budget in tough times is the main tool to use to overcome the lull," Mr Judson says. "And get some good data to make informed decisions, before others do it for you. The critical aspect for the owner is to respond to the situation within their own market and not that of other industries."
Tighten the belt
• Enforce invoice payment terms strictly
• Remove discretionary items not fundamental
• Review hours and duties of staff
• Don't stock up
• Cash count