THIS month Jonathan Staples, of Bury-based Horsfield & Smith chartered accountants and business advisers, asks the question: Are you facing a cash flow crisis?
A strong and steady cash flow is vital to maintaining a healthy business. Most businesses that fail do so not because they are not profitable, but because they run out of cash.
Identifying the cause(s) of your cash flow problems is the first important step in tackling the issue.
Cash flow questionnaire Look at the following questions and select the most appropriate answers.
Q1: How often do you credit check new and potential customers?
A: Always; B: Often; C: Rarely; D: Never.
Q2: Which of the following reflects your invoicing routine?
A: We always send invoices promptly and to the correct addressee; B: We usually distribute invoices relatively quickly; C: We sometimes send invoices late; D: Invoices are regularly sent out late and to the incorrect person.
Q3: How do you deal with late payment?
A: We regularly monitor clients’ payments and obtain deposits from “suspect” payers; B: We try to keep an eye on payment patterns as much as possible; C: We often lose track of outstanding payments; D: We do not have a procedure for tackling late payment.
Q4: Which of the following most closely resembles your debt collection strategy?
A: We telephone ahead of due dates, send reminder letters and arrange visits if necessary; B: We usually send reminder letters and contact by telephone; C: We sometimes send reminder letters after the due date; D: We hardly ever close down on outstanding debts.
If your answers were mostly As, then you have a sound grasp of cash flow management. Remember to check and update your forecast on a regular basis to keep your business healthy!
If the answers were mostly Bs, there is room for development, so consider areas where you can improve the flow of cash in and out of the business.
If mostly Cs, beware, as inadequate cash flow procedures may be threatening your business.
If the answers were mostly Ds, your business may be facing potentially damaging cash flow problems. It is vital to address this issue without delay. Contact your accountant as soon as possible.
Professional advice should always be sought as individual circumstances may differ. Jonathan can be contacted on 0161 761 5231 or email jonathans@horsfield-smith.co.uk
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