Another one... how should cash flow work in a company...

[davido140]

Morning business people...

Another topic on my "educate myself" list for this weekend is to get a better idea of the principles of cash-flow management for small to medium businesses.

How to better manage cash flow, percentage reserves that should be kept, and...erm... I dont know really, I just want/need to know more on the topic and what the best practices are supposed to be.

Are there any good books? or Internet articles?

I dont really want to just google this one as I could end up reading a load of old horse poo.

Thanks

[Eric Mc]

What's to know?

Collect money from your customers as quickly as possible (potentially at the point of sale - or maybe even before that).

Delay paying your suppliers as long as possible (within limits - you don't want to upset them).

It's as simple as that.

Edited by Eric Mc on Friday 2nd April 10:24

[davido140]

haha, that's what I thought, but then everything else in running a business is so complicated there MUST be more to it!!

Perhaps not!

Thanks again Eric!

[Simpo Two]

davido140 said:

haha, that's what I thought, but then everything else in running a business is so complicated there MUST be more to it!!

Sometimes simple is good. When it gets too clever (see '2008 banking collapse) that's when you suddenly realise that all your money doesn't actually exist and you go bust.

I suspect businesses with 'cashflow problems' are either badly run or don't have a good business model.

[3200gt]

Keep an eye on where you believe you will be in 2 or 3 months time. odd, unusually large, invoices can catch you out if you don't plan for the payment in advance.
If you give your customers credit of say, 30 days EOM, then AGREE with your suppliers, prior to ordering, terms of 60 days EOM. That way so long as you get your money in reasonably quickly, ie. within terms + up to 3 weeks late, you should be able cover all your supplier payments within the agreed terms. Your suppliers are happy because you have stuck to your terms with them and are more likely to look favourably upon future pricing policy or requests, your customers are happy because you haven't pushed to hard for payment within strict terms.

[An Oasis]

Be careful about late paying your suppliers, it does not endear you to them. If like us you sometimes need to be able to ask them to go the extra mile because of a tight deadline or a client that suddenly changes specs at the eleventh hour, late payment is a sure way to get placed at the end of the queue.

The best thing we ever did was to transfer the accounts to a good accounting package, makes checking details like cash flow...easy via reports.

Plenty of different packages available free, paid, online, offline.

[Eric Mc]

coyft said:

Eric Mc said:

What's to know?

Collect money from your customers as quickly as possible (potentially at the point of sale - or maybe even before that).

Delay paying your suppliers as long as possible (within limits - you don't want to upset them).

It's as simple as that.

Edited by Eric Mc on Friday 2nd April 10:24

This is close, but I disagree with delaying payments. The ultimate way to manage cashflow is to be in a position where you don't need to manage it. So, as Eric says collect money as quickly as possible, ideally before you manufacture or supply a service, negotiate monthly credit terms with your suppliers and stick to them, paying them all in one match at the end of the month. Using this method you won't need to manage cashflow (presuming your cash inflow is always greater than your outflow).

I meant by the word "delay", make the most of credit terms provided by suppliers. That's why I said "within limits".
You need a good relationship with your suppliers so abusing that relationship isn't going to do your business much good in the long term.

[MBHappyBunny]

Hi

Glad to hear that you are thinking about this important subject.

Ensuring that your customers pay on time and that you pay your suppliers on time is crucial to running a business.

You need to ensure that the business is operating profitably and that you allow the business to build up retained profits in order to meet future capital requirements.

I am always astounded by the number of business owners that strip every last penny out of their business to buy big houses and flash cars and do not leave enough money in the business to meet its tax obligations or investment needs.

The ability to pay your suppliers on time in the short term is a indication of a well run business, the ability of the company to meet all of its future liabilities out of its current cash reserves is a better indication of a business that will survive in difficult times.


HTH

[taffyracer]

Simpo Two said:

davido140 said:

haha, that's what I thought, but then everything else in running a business is so complicated there MUST be more to it!!

Sometimes simple is good. When it gets too clever (see '2008 banking collapse) that's when you suddenly realise that all your money doesn't actually exist and you go bust.

I suspect businesses with 'cashflow problems' are either badly run or don't have a good business model.

There are Alot of simplistic comments going on here, in theory it all sounds simple, but in practice its very different, in my case its not down to bad management or not having a clear business model, we do and we run the business well which is why we are still in business after 43 years, I have 4 or 5 key clients that spend upwards of £1million pa, they're all large well known high street chains or fitness groups or leisure companues, somethimes I can be waiting upto 4 months for payments, my suppliers demand payment within 30 days, we normally always pay suppliers early to get cash discounts but there is a large chunk in the middle that needs managing, if it was that simple I wouldn't have an FD spending 60% of his time managing cash and would be racing alot more!

[Beardy10]

Any software packages people would recommend for keeping an eye on cashflow ?

[Eric Mc]

Any proper book-keeping software will help you monitor and control your debtors and creditors ledgers - as well as your bank and cash balances. That is on of the key reasons why double entry book-keeping was invented.

If you don't maintain a fully controlled and reconciled book-keeping system, then making up your own cash account software using a spreadsheet package can work quite well (that's the way I do it).

[Eric Mc]

taffyracer said:

Simpo Two said:

davido140 said:

haha, that's what I thought, but then everything else in running a business is so complicated there MUST be more to it!!

Sometimes simple is good. When it gets too clever (see '2008 banking collapse) that's when you suddenly realise that all your money doesn't actually exist and you go bust.

I suspect businesses with 'cashflow problems' are either badly run or don't have a good business model.

There are Alot of simplistic comments going on here, in theory it all sounds simple, but in practice its very different, in my case its not down to bad management or not having a clear business model, we do and we run the business well which is why we are still in business after 43 years, I have 4 or 5 key clients that spend upwards of £1million pa, they're all large well known high street chains or fitness groups or leisure companues, somethimes I can be waiting upto 4 months for payments, my suppliers demand payment within 30 days, we normally always pay suppliers early to get cash discounts but there is a large chunk in the middle that needs managing, if it was that simple I wouldn't have an FD spending 60% of his time managing cash and would be racing alot more!

The bigger the business, the more complex the issues - generally speaking. My impression is that the OP is contemplating a start-up situation and there is no need for complex cash flow issues at the commencement of a business - unless the proprietor has taken on a large element of finance debt or complex credit arangements with suppliers in order to get started.

Cash flow can, of course, become an extremely complex and crucial matter for a business. Poor cash-flow management can bring down the most profitable of businesses - and has.

However, at the beginning of trading, keeping things simple is always a good motto.

[Beardy10]

Eric Mc said:

Any proper book-keeping software will help you monitor and control your debtors and creditors ledgers - as well as your bank and cash balances. That is on of the key reasons why double entry book-keeping was invented.

If you don't maintain a fully controlled and reconciled book-keeping system, then making up your own cash account software using a spreadsheet package can work quite well (that's the way I do it).

I'm a shareholder in a relatively new business...the cashflow is currently done on a spreadsheet which works fine. I am just not a great fan of spreadsheets where cells can get hardcoded etc

Just wondered if there was something simple/robust that people can't mess up easily.

[An Oasis]

Beardy10 said:

Any software packages people would recommend for keeping an eye on cashflow ?

Happy to recommend what type of criteria suits you (see my post above)?