We see it all too frequently, businesses of all sizes getting into financial trouble and struggling to pay their suppliers, the taxman and their own staff. This can happen because the people running the business are so focused on their product or service or customers that they forget to take care of cashflow management, which is key to sustainable growth. Cash is the lifeblood of every enterprise, but although entrepreneurs want to make money, ironically, they sometimes forget about cash.
Recently we saw a marketing services business that made lots of sales and had great service delivery, but could not deliver its services at a profit and made so many mistakes with its invoices that it struggled to get paid, even when the customer was happy with the service. They were growing too quickly and could not manage the business they had become.
We live in strange economic times. Banks are not supporting businesses to anything like the degree the economy needs, while at the same time, too many businesses operate a culture of slow payment to their suppliers. This is a top-down problem. Too many of the largest UK companies pay slowly and this trickles down through the rest of the economy.
This means that you must take care of yourself and implement strong cashflow management in your business. Manage your outgoing payments, while getting everyone who owes you money to pay you as soon as possible.
Dealing with payables:
And reflect your cashflow management in a cashflow model, so you know where you stand all the time and can predict and negotiate bumps in the road ahead.
© Michael Austin, founder and managing director of Blue Dot Consulting, a firm of chartered accountants focused on small and new businesses in southwest London.