Without real time financial information, it is hard to make informed business decisions.
Historical financial information is evidence of past achievements and can be an indication of trends.
But trying to make critical business decisions based on data that is 6 or 12 months old can be a recipe for disaster!
Fortunately, today business owners can use accounting software, (Xero, QuickBooks etc in combination with Hubdoc, Receipt Bank etc) to access the information they need in real time and very cost effectively!
Whilst the past is important, cashflow management is about today and the future! (Tomorrow’s cashflow repays todays debt!)
Real time data is a great starting point!
Financial data is the “language” through which Lenders understand a business!
If they have to rely on dated, or poor-quality information, finance is invariably hard, or expensive, to obtain.
A key to effective cashflow management and getting the finance you need is speaking the same “language” as Lenders!
Give them the information they need, in the format they require, to properly understand your business.
A benefit of real time information is that it allows you to create projections (that have a solid foundation) to understand the likely cash needs of the business going forward.
Many businesses wait until a crisis occurs, (or there is an immediate cashflow need), to prepare financial projections. This is a mistake & poor cashflow management!
The best time to seek finance is well before you need it!
That said, projections are not just for the Banks – they are an essential and practical planning tool.
Whilst they will always be a “best guess” they allow business owners to plan and adjust strategies – to keep ahead of the game, instead of playing catch up!
One common issue that can lead to cashflow problems is the wrong debt structure!
Particularly long-term assets being financed with short-term debt.
Often as a business evolves, debt is increased to meet an immediate need.
The type of funding is often secondary to the availability of the finance!
Undertaking a review and ensuring the debt structure is appropriate for the business is one way of avoiding or relieving cashflow issues.
As the world changes, it is important policies and systems within the business are adjusted accordingly:
- Supplier payment terms
- Stock Management
- Debtor collections
Effective cashflow management is about ensuring policies are aligned to the current reality.
They also should be documented and “lived” by everyone in the business.
(Robust, documented policies and procedures are also a positive from a Lender perspective)
Access to finance is a major business risk that needs to be managed just like any other business risk.
Banks’ appetite and policies can, and do, change!
For this reason, effective & prudent cashflow management is about:
- Knowing where you stand
- Understanding the broader market appetite for your business
- Having a fallback position if the Bank says no!
Although trading conditions are challenging, accepting reality and making the adjustments needed is the best way to avoid cashflow problems.
It can also ensure you are well positioned to take full advantage of opportunities when they arise, as they invariably will!
Knowing where you stand, your negotiating power and leverage before seeking finance is critical!
It can provide peace of mind, better outcomes and free up headspace to focus on what is important – running your business!
If you are thinking about finance, or would like to learn more, don’t hesitate to get in touch.