What does cashflow mean to you?

If you’re like most people you probably think you’ve got a pretty good grasp on all things money.

What if I told you you’ve probably only got part of the story?

According to The Australian Oxford Dictionary cashflow is – movement of money payments to or from a firm. You’d be forgiven if you think that’s where it ends. Most adult dictionaries state just that, but a quick look at the Oxford Student’s Colour Third Edition and you’ll get a deeper meaning – cashflow is the movement of money out of and into a business as goods are bought and sold, affecting its ability to make cash payments.

Affecting its ability to make cash payments. That’s a pretty important thing to consider. It’s all well and good knowing that cashflow is money coming in and money going out, however when you see that the flow of money affects your ability as a business owner to make cash payments then the game changes.

Look at your business as a football team and the players are the cash. Your cashflow depends on how well your players perform. As the coach it’s up to you to apply strategies to get the best out of your players. If your players aren’t performing then that’ll affect your ability to make cash payments.

Let’s say your team isn’t performing as well as you like. Your strategy might be to cut them a bit of slack and go into debt to make up for their performance. You’ll quickly learn that going into debt isn’t a cashflow solution. You’ll need to reassess your game plan if you don’t want to be dealing with insolvency.

In fact, according to a 2013-14 report into corporate insolvencies by the Australian Securities and Investments Commission, the top three causes of business failure are:

1. Inadequate cashflow or high cash use (41%)
2. Poor strategic management (37%)
3. Trading losses (33%)

Decisions Create Your Destiny

Having adequate cashflow strategies is about making decisions you’re uncomfortable with. . Why not use the Christmas break to look at your cashflow for the past year, and make some decisions about what you can do to make improvements for the year ahead?

Here are some tips to help you along:

• Make a budget – include expenses you can’t avoid and put a date next to them.
• Gift buying – this is usually governed by emotion and impulse, so having a limit and sticking to it is helpful.
• Make a list of debtors – call on those who owe you money.
• Plan work that can be invoiced – be smart about the work you’re doing over the Christmas period.
• Get a CASH profit and loss – look at your bank statement for the last three months and ask yourself some tough questions like ‘do I really need this’.
• Reassess direct debits – do you really need that fancy car taking so much out of the business?

Most importantly, if you don’t know how much money is coming in and how much is going out then you’re in trouble. It is time consuming but it’s not difficult to get a clear picture of where your cashflow problems might be.

If you don’t want to be hanging up your coach’s hat permanently and joining team insolvent, then you owe it to yourself to ask some tough questions and make some uncomfortable decisions.  Why not call me the cheerleader to make a plan for positive cashflow.

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