When cash flows it is always great for any business but when drought occurs so does stress, anxiety and grey hair.
While expenses always seem to be present, income can ebb and flow. The idea is to keep the flow happening on a consistent basis.
Without a consistent cash flow, bills will be harder to pay, wages will be harder to pay and there won’t be the ability to invest back in the business or buy new equipment.
Small to medium business is a large contributor to the Australian economy. Many small businesses thrive but there are a number which just don’t survive. Many times this can be due to a lack of time and skill in actually running the business. A business may be built on a fantastic product or service but unless it is managed effectively, the product or service is not enough.
Some people just should not be running a business, their talent lies elsewhere and one area which constantly gets them down is the accounting.
The sooner one realises accounting is not a talent and help is required, the better.
Hire an assistant, engage an accountant and outsource the credit function.
Factoring enables you to outsource your credit function, get consistent cash flow and keep your hair dark.
Factoring is the selling of an invoice as an asset, it is a way for a company to fund their business without increasing borrowings, and a way for their growth to become self-financing.
Lee Clarke, former chairman of the Debtor and Invoice Finance Association, says factoring is useful for any company that has a working capital gap – that is, if invoices aren’t being paid quickly enough to cover costs, which is often a problem for a growing company.
He offers an example of a labour hire company. If the company supplies staff it must pay weekly, but it gets paid only once a month by the company to which it supplies workers, it has a cash-flow shortage.
If cash flow isn’t managed properly it can have a disastrous effect on the company, so it needs to be tracked and controlled, making adjustments when required.
To do this a business needs to know all about its own income and expenditure, know as much as possible about their customer’s credit status and history and just as much about their suppliers.
It is essential to know about your customers’ payment reliability and credit status, this is a service a Factor can provide.
A long term forecast for the business is essential and a Factor can also assist with defining the forecast by maintaining the history of payments by customers and daily management reports on collections.
Cash flow should be a continual cycle and fairly predictable for a business to succeed, balancing the money which comes in with the money going out, gradually accruing more inflow than outflow which enables the business to grow.
A successful small business is one which establishes a regular cash flow cycle without going into debt.