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Who Needs Cash – We’re In Profit!

This post may state the obvious – but sometimes this is no bad thing!

We all know the phrase “Cash is King”. Why is it then that we often forget that cash is a pre-requisite to perform any function in business?

We look at our margins, our P+L and balance sheets and smile (if we’re making money) or act (if we are not).

What this does not do is tell us whether we can actually pay for anything this month! We can look at our bank accounts and realise they are empty even though our revenues on paper look nice and healthy.

Why do we need cash?

To pay ourselves, our staff, our overheads and our suppliers.

If we don’t manage our cashflows correctly, the people we rely on will suffer and consequentially so will our business.
The current lack of credit availability makes it even more difficult as businesses find their overdrafts restricted or curtailed and who are suffering themselves on invoices that are not being paid.

What’s the answer?

Ideally, the banks need to free up the cash on the back of issued invoices. The problem is that no invoice is “guaranteed” for payment and in the current climate with companies going to the wall or reducing costs, the invoices may never be paid thus exposing the bank itself to further losses. I’m not going to try and remedy this situation here – we have enough people making a mess of that already ๐Ÿ™‚

Here are a few small things that you can do as a business to protect your cashflow.

  1. If its a new customer, get a deposit of some description. Its amazing how many people are afraid to ask for this in some sectors. This should be the rule. If the customer pays the deposit, chances are they are good payers and serious about the transaction, along with demonstrating that they have available funds.
  2. Have staged payments during the delivery. Even with a deposit, its a good idea to try and negotiate a deal to have customers pay you during the delivery life-cycle and just reserve a % for the final payment. Do not allow stage payments to slip and continue the job.
  3. Make sure that you are keeping an eye on the due invoices. If a company is a slow payer, he who shouts loudest generally receives before those who are quiet. Be polite, but firm. At the end of the day you have done your job and deserve to be paid.
  4. If your bank facilitates it, request an automated mail/text message when your bank balance hits a certain figure to let you know that things may be getting a little tight!
  5. Don’t hold large quantities of stock. While it may be more expensive to buy smaller volumes i.e. less discounting, if it’s going to take 6 months to shift the stock, what’s the point?
  6. Do a cash projection up for the next 12 monthsย  and see if there are any peaks and troughs that need to be thought about. If there are going to be troughs, let your financiers know early so that credit extensions, overdrafts etc can be sorted out.

These are just few. There are plenty more and please comment if you have some ideas/experiences here.

There is no excuse for poor cash awareness in your business. If you do not manage it and you go into a rough patch you will end up in real trouble and possibly go into liquidation. And on that cheery note, I will end.

Cash is King lest you forget!

Budding entrepeneur working on software product solutions for business. My background is mainly operational and senior management roles in mobile telecoms and software houses. Areas of expertise include professional services, out-sourcing, team management and general operations management. I've made the conscious decision to create my own company having spent the last 20 years learning in the corporate world. In my contributions to this forum, I will share some insights and learnings that I've picked up along the way and hopefully they will be useful to some or all!

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  • Brilliant post. And as a beginner blogger yet again I learn more from you.

  • Anonymous

    Can people who are already loyal followers and fans enter the competition or is it especially for newbies?

  • Sian, I wouldn’t call you a beginner blogger but thx. Cheers, Niall

  • Existing & new followers can enter the @bloggertone draw to win a free broadband from Vodafone

  • Anonymous

    โ€œIโ€™m following @bloggertone and entered a draw to win a free modem/mobile broadband from Vodafoneโ€

  • Everyone can participate, but I guess I cannot really enter ๐Ÿ˜‰

  • Indeed!

    For me, blogs are ripping down the Berlin walls around companies and letting customers (and anyone else) walk right into the heart of the firm.

    Whether that’s a good or a bad thing depends on what you do with it.


  • Hi Ian, that’s a really wonderful analogy. I like It! By the way, we need to get you blogging on here ๐Ÿ™‚

    Great comment again,

  • Niall, I love your comment that “engaging rather than controlling is where it is at”. I’m gonna quote this at my next seminar! Unfortunately, many (especially larger) organisations are focusing on controlling so heavily, they never start with online communications, in order to engage in alternative ways with new customers.

  • Nice one Barney. Yes, it’s right, many business forget about the importance of cash flow… passion sometimes gets on the way but it’s not always the case.
    What you mentioned about the deposit is crucial. If you provide a service, more specifically, and it takes you time to prepare before delivery, ensure that you get a down-payment. Figure out the way in which you your structure becomes “pre-paid” as often as possible. Yes, there would be payments upon delivery or after but that first move literally covered all your costs so the risk is much lower.

  • Hi barney,
    These are all points we know, but like everythiing in Life and Business, we seem to overlook the obvious more often than not.
    Anyone who doesn’t know the state of their finances in this climate is in for a big slide downward, and a very rough landing, because someone has taken the cushion away!
    Vigilance, in both your business and personal finances, and creativity is required (and all the points above, of course).
    Utilise the cashflow section of your accounts package and let it tell you when danger is approaching. I’m off to ring my bank about texting (not too optimistic though, as they don’t even like e-mail).
    Thanks for a great post ๐Ÿ™‚

  • As Elaine stated ‘Utilise the cashflow section of your accounts package and let it tell you when danger is approaching’

    We are a provider of a web-based accounts package. Fusion enables accountants, bookkeepers and businesses to liase more closely as it provides them with real-time access to the companys financial data, therefore they can be more proactive in managing their cashflow

  • Barney, another gem! An aside: I had gotten away with no bad debt for the whole of 2009. Lucky me I was thinking and then I got two small slaps last month ๐Ÿ™

  • Hi Kathryn, just found out you have become a Bloggertoner! A BIG Welcome to the gang and I looking forward to reading your posts. Thanks, Niall

  • No bad debt in 2009 is pretty impressive considering the climate. 2 small slaps in a month is not a good sign though – hope you get that sorted! Thanks for the comments Niall.

  • Hi Elaine. Thanks for the comments as always. No cushion any more is a very good analogy – makes it more real somehow!
    Good luck with the bank – I think i know which one you might use – my new one doesn’t like email either :(.

  • Anonymous

    Important topic Barney

    As Fred rightly points out as a service provider I work prior to delivery. I try to send invoices the day I start service provision whereas previously I send them at the end of each month.

    I still do a bit of psychometric testing for companies recruiting which would be classified product and I have started to sell bulk units at a slightly discounted price with up front payment.

    I never really had major problems (like Niall) but prevention is better than having to hire the muscle.

  • Hi Paul – thanks for the feedback. Good idea to send the invoices on day of service provision – every little bit keeps cash flow in check.

  • Anonymous

    Thanks Barney, great post! It’s so true, a lot of people confuse profit with cashflow. A lot of the businesses that went bust last year were in profit on paper. You need to do everything you can to get that money in!

  • We have a comprehensive checklist on Improving Cashflow at

    Our fully-integrated casflow planning tools (for Excel) incorporate dynamic versions of the checklist. This allows users to plan improvements and assess the impacts (on cashflows, P&Ls and balance sheets).

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