6 Myths about cashflow that you need to ignore
There are a lot of untruths out there about cashflow, especially if you have a small business. In this month’s blog, we want to uncover those myths so you don’t make these common mistakes.
1. You only need a cashflow statement monthly
A monthly cashflow statement is a good way to see what money has moved in and out of your accounts. But that does not mean that you only look at it once a month. You need to consider your cashflow projections on a much more regular basis as these show the cash position at intervals in the future. Longer-term projections are also needed, especially in growth situations.
2. You only need cashflow management if you are big business with staff
Regardless of how big or small your business is, you still need cash to pay bills. Money is constantly going in and out of your account so you will still need cash which means you need to ensure you have cash in your accounts to cover all your expenses at any given time.
3. Profits equal cashflow
Profits are not the same as cash flow. Profits only show money you have coming on paper, but cashflow is what the business currently has in the bank. Eg: if you have $20,000 in receivables but they aren’t due for 30 days but you have expenses of $23,000 to pay in the next 30 days.
4. Strong accounts receivable means good cashflow
It is always nice to have money owed to you for the services you have provided as that represents future cashflow. However lots of invoices are due for payment doesn’t mean you have good cashflow, especially if payments are made late and you have more expenses going out than money coming in. Strong receivables do not equate to strong cashflow.
5. The health of my cashflow has no impact on my day-to-day business activities
Cashflow does impact your day to day activities in many ways. It provides bargaining power with suppliers, and the ability to invest in assets, avoiding having to discount your product or service to win new business. Not to mention easing some of the stress on you as the owner, by knowing you have positive cashflow to cover your expenses.
6. A negative balance is death for my business
Not necessarily! You can probably continue to trade in the short term even if they are making a loss. However, immediate action is necessary. This could be if you can delay paying creditors, change trading terms to make payment dates shorter, or bring in new business.
If you don’t know how to plan for consistent cashflow, talk to us and we can work with you to put a plan in place and help you keep “On The Money”
