Cash Flow is King – September 2015

September 9, 2015 ,

A timely reminder … CASH FLOW is KING.

A common trait found in a sustainable business is regular monitoring of cash flow.

Reviewing your business’s monthly profit and loss can be rewarding, especially when the bottom line reflects a budgeted profit. But watch the trend and please be mindful, a profit on its own is only one part and simply not enough for business to be sustainable.

A successful business operation ensures consistent profits are maintained, month after month. If profit targets are not materialising as a result of the business operations, immediate investigation needs to be undertaken to identify why. Decisions need to be made, action needs to be taken by owners/managers to rectify the trend.

We encourage you to watch your balance sheet, it can be an early indicator of a deteriorating cash flow trend. Four key balance sheet accounts to monitor:

– bank balances
– accounts receivable balances
– accounts payable balances
– inventory/WIP levels

Rising inventory levels and rising accounts receivable balances tend to lead to a declining bank balance, potentially resulting in a profitable business being confronted with NO CASH. It’s at this point the restless nights can tend to kick in, potentially opening up a whole Pandora’s Box of issues for business owners and managers to work through.

We encourage you to keep a regular finger on the pulse of these accounts and KPI’s, ideally monthly. We tend to find the quarterly BAS lodgement, whilst not the most exciting process, can bring cash flow issues into the open.

Ever asked the question: Why isn’t there enough cash in the bank account to cover the total quarterly BAS payment?

If the profit and loss is showing a profit, but the cash is not in the bank account, it is time to get your “game face” on. The following will be payable, in cash, 28 days after the end of each quarter:

– goods and services tax
– PAYG Withholding
– PAYG Instalment (if applicable)
– FBT Instalment (if applicable)

Profit does not equal cash.

A word of warning, the ATO is far less tolerant of businesses that fall behind in the lodgement and payment of the BAS obligations. Why? Perhaps because the government’s own profit and loss is running at a minus $100 million a day. Speaking of cash flow problems…

If you find yourself confronted with any of these issues, it is time for a chat, you are not alone.

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