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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

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 months  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!