Most will agree that the light at the end of the tunnel is no longer an oncoming train and whilst the 2008 recession (such as it was) is now officially over, it will take the economy (read SMME’s) some time to rally, make a come-back and hopefully deposit us right back to where we were – obviously not in terms of what caused the melt down in the first place, but certainly in terms of running productive, successful businesses.
I know that I really had to ‘grit’ my teeth and bear it for a few months – you know what I mean – the uncertainty of money coming in or getting work in or making the sale and so on.
Fact of the matter is , that when you are in the dwang – that’s exactly where you are and sometimes it is just a matter of waiting it out. There are a number of tips though, that will help and guide you through, should you find yourself in difficult or trying times. Actually it is not a bad thing to get yourself in the habit of doing these all the time – bad or good times.
For me, if you have lost control of your finances, then you have lost control of your business. I think that most people, when they think of business finances, what they think about are the books and whilst I agree with that on some level, I also want to make it very clear that the books are ‘reactive’. By that I mean that they are ‘in the past’ – what is contained in your books has already happened. Cash flow, on the other hand, governs what is happening right now.
Think about it for a moment – it doesn’t matter how many people owe you money, or who have promised to pay you – the bottom line is that when you look at your bank account, it is about what is actually there (less what needs to be paid out) that actually counts. So it stands to reason that the cash flow needs to be properly managed and should be discussed at every management meeting. If, like me, you are on your own, it is a good idea to make time (at least weekly) to check up and see what is going on.
Make sure that the Management Accounts are monitored on a regular basis and that they are consistently checked for issues such as the key ratios, this will assist in enabling you to identify trends earlier, when you can still do something about them, rather than later, when you are already in the smelly brown stuff. Updating your cash flow forecasts on a regular basis will also assist in ensuring that you are ahead of the game – remember to watch the sensitive bits – issues like a change in the exchange rate or a price hike in fuel could have a huge effect on your margins.
Next time we will have a closer look at margins.