Cashflow Management for your business

‘Turnover is vanity. Profit is sanity, but Cash is reality.’
The adage is a timely reminder of the need for proper financial controls in a business. Indeed, cash is the lifeblood of any business and at McCarthy & Co, we have assisted many clients in a restructuring capacity to maintain business viability. It can be tempting for business owners to engage in overtrading to grow the business or increase market share, but this can have a detrimental effect on liquidity and cash reserves. In this article, we highlight some of the useful areas to manage to keep your business on an even keel. 
1) Prepare regular cash flow forecasts
Maintain regular management accounts information and adjust projections on a rollover basis. Maintaining a good information system can equip business owners with the knowledge to focus and deal with the challenges ahead.
2) Debtors
Review your Debtors Days (ie how long on average your customers/clients take to pay) and gauge against your supplier credit to properly analyse the working capital cycle in the business. 
3) Invoicing & Credit Control
Ensure you have a practical and working credit control policy. Best to invoice your customers/clients at the outset and apply a number of days credit (eg 30 days). If possible, many business in the current times have made use of a direct debit system to structure cash inflows efficiently.
4) Stock
Review the business inventory levels and ensure that the business is not accumulating old or obsolete stock which is a very inefficient use of cash resources. 
5) Creditors
Ensure you are availing of the maximum credit allowable (unless availing of cash discounts).and gauge against customer cash receipts in terms of the working capital cycle in the business.
6) VAT registration
A business with a turnover of less than €1 million can avail of VAT registration on a cash receipts basis. This means that the VAT on sales invoices does not have to be paid over to the Revenue until receipt of payment from the customer. This can be very advantageous in terms of working capital reserves.
7) Bank Funding
Most small to medium business retain some form of bank funding, whether it be an overdraft or loan facility. Communication is always key and keeping an informed  relationship with your bank is always optimum in maintaining funding for the business.
8) Revenue Payments
Many businesses in the current climate have fallen in arrears with Revenue payments. It is not advisable to defer Revenue payments as a form of financing. If there are significant sums involved and the business goes into liquidation, the directors could be personally held liable for reckless trading. It is important in this situation to file outstanding Returns and agree a restructured monthly instalment arrangement which can be managed by your business in the medium term. 
9) Capital Expenditure
Ensure capital expenditure incurred (on machinery/plant etc) is financed by loan finance or leasing arrangements rather than more expensive short term debt such as an overdraft. Before acquiring capital items secured on financing, evaluate the cash-flows accruing to your business as against the servicing of loan repayments.
10) Overhead Expenditure
Review overhead expenditure on a continual basis to ensure that it is justified in the business and whether operational adjustments can be made to make the business more efficient.
For more information on working capital management and how it affects your business, call McCarthy & Co on 01 444 5260 for a free consultation in confidence.