Managing Cash Flow in Your Business - Rule 1 Keep your books up to date and accurate

Welcome to a new series of blogs for 2018 on managing Cash Flow in your business.

In last month's blog, I mentioned that Cash is King is so critical for businesses starting up, growing or even exiting. At any stage of the business life cycle, cash is vital. Without cash, there is not a chance for business survival.

I stated five simple rules that will help you manage your company's cash flow better. Those rules are briefly restated again.

Rule Number 1 - Keep your books up to date and accurate.
Rule Number 2 - Don't be too lenient with your customers.
Rule Number 3 - Keep your accounting simple.
Rule Number 4 - Keep your business and your personal finances separate.
Rule Number 5 - Build a cash reserve.

Over the next five weeks, I shall explain in more detail how you can implement these rules into your business. Today, I am going to delve deeper into the first rule. The first rule of keeping your books up to date.

Rule Number 1 - Keep your books up to date and accurate. 
Often i get asked "why do i need to keep my books up to date? It is too time consuming and i cannot see any value in it." My simple answer to that question is:

Your cash flow is only as good as your accounting and reporting. 

Make sure your accounting information is updated regularly. If your accounting information is not up to date or not correct, the information that you review will be incorrect. If accounting information is up to date and accurate, then you can see the financial state of your business at a glance.

For example, if your accounting records are not up to date, how will you know the answers to the following questions?


  • The amount of money that is owed by each of your customers
  • The amount of money that you owe to your suppliers
  • The amount of money that you owe to the taxation department
  • The amount of inventory that you have on hand
  • Can i afford to buy a new machine for the business?
  • How much salary can i take the business?
  • Will the bank give me a loan?

These are just a few of the many questions that you should be asking yourself about the benefits of keeping your accounting records up to date. Being on top of your accounting records will also help you maintain a healthy cash flow within your business, and allow you to spot trends in your finances early on. Being able to spot potential financial problems before they become critical is invaluable as you grow your business.

By having accurate financial accounts (or close to), you will have peace of mind knowing that you know your present financial situation thus enabling you to be able to take action on any issues that is impacting upon your business. You will know which customers owe you money and you will know who you owe money too.

Pinpointing the areas of your business that needs proper cash flow management is so much easily with a clean set of books. You know your present financial situation which will enable you to plan for the future.

I highly recommend that you should prepare at least 3 month cash flow forecast. If you have already prepared a budget for this year, a 3 month cash flow should be simple. If you are new to cash flow forecasting, a little extra time will be required to start the process.

If you would like further information on how to prepare your first cash flow forecast, send me an email to wealthvisionmastery@gmail.com and i shall send you some information.

Cheers,
Peter Adams




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