Cash flow management is key to running a successful business. It provides data that allows a small business owner the tools to understand the cash flow issues that require attention.
Discussed below are some misconceptions held by small business owners that can really have a negative impact on the business.
The ATO has recently announced that small businesses are appox. AUD$9 billion in debt on their BAS statements. This highlights not only the significance of optimal cash flow management for small businesses but when compared to 2 years ago (approx. AUD$4 Billion) it shows that businesses are actually getting worse at this. The high level of debt highlights severe cash flow problems that a large amount of Australian small businesses are going through. An effective way to combat this is through regular cash flow reviews with your accountant or experienced bookkeeper.
A large amount of businesses that are making a good profit still fall due to poor management of their cash flow. This is largely caused by small business owners thinking that profit equals cash. This is not always the case.
You may need to outlay cash for inventory that sits there for a long time, trade debtors might be outstanding for a long time or trade creditors might be adding up. Cash flow can suffer in the background while a small business is still profitable on paper. Keep on top of cash flow, at the end of the day that is your ultimate goal, not profits.
It is very important to have a well planned process in place to reap the benefits of your cash flow managment.
Effective management of your cash will help you to identify different spots in your business where cash is being misused and locked up and could need to be monitored. If you have thought about where all your cash is ending up, this kind of management can give you the data needed to make better decisions on how to operate your business.
Data based decisions are always the best. A small business that understands their income statements, balance sheets, forecasts and cash flow statements are going to be in a better position to make good decisions.
Discussed below are some misconceptions held by small business owners that can really have a negative impact on the business.
The ATO has recently announced that small businesses are appox. AUD$9 billion in debt on their BAS statements. This highlights not only the significance of optimal cash flow management for small businesses but when compared to 2 years ago (approx. AUD$4 Billion) it shows that businesses are actually getting worse at this. The high level of debt highlights severe cash flow problems that a large amount of Australian small businesses are going through. An effective way to combat this is through regular cash flow reviews with your accountant or experienced bookkeeper.
A large amount of businesses that are making a good profit still fall due to poor management of their cash flow. This is largely caused by small business owners thinking that profit equals cash. This is not always the case.
You may need to outlay cash for inventory that sits there for a long time, trade debtors might be outstanding for a long time or trade creditors might be adding up. Cash flow can suffer in the background while a small business is still profitable on paper. Keep on top of cash flow, at the end of the day that is your ultimate goal, not profits.
It is very important to have a well planned process in place to reap the benefits of your cash flow managment.
Effective management of your cash will help you to identify different spots in your business where cash is being misused and locked up and could need to be monitored. If you have thought about where all your cash is ending up, this kind of management can give you the data needed to make better decisions on how to operate your business.
Data based decisions are always the best. A small business that understands their income statements, balance sheets, forecasts and cash flow statements are going to be in a better position to make good decisions.
About the Author:
Effective Cash Flow Management starts with an experienced small business bookkeeper, visit Balance This! is Brisbane's leading bookkeeping provider, offering Australian small businesses a cheap service with no compromise on quality.
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