Cash indeed is king, but bookkeeping is the queen!
As business owners, you will be familiar with the saying Cash is King. As part of the cash management strategy for your business it is important that you can readily access (and do so regularly) your cashflow status. For example, is your business generating a cash surplus currently or is there a cash drop due to recently spending money on equipment? Are these questions you can accurately and efficiently answer right away?
One of the key principles that we must remind ourselves about, is that if we are in business then we need to be making money! Yes, there are other reasons as well as to why we may go in to business, and they are just as valid. But if a business is NOT generating a sustainable profit then this needs to be analysed, profit is different from turnover/revenue, and it is different from cashflow – terms which I have seen in my work with clients that are often confused by these terms.
Profit is sales less expenses. Turnover/revenue is the sales a business has each year. A business could have high sales, but if the expenses are disproportionately high to those sales or the cash is managed poorly, then a business will find itself in financial strife. Further, a business could have an excellent profit - but if half the debtors and invoices are not managed well, then there is going to be minimal cash sitting in the bank account.
As a bookkeeper, my experience with clients has shown that when it comes to analysing the financial aspects of the business, this is not an activity of choice! But if you take up the challenge to start looking at your numbers, you will reap the rewards in your business.
Start first with your business expenses; what expenses are variable expenses and what are fixed expenses? Rather than just looking at the dollar value of the expenses, consider the percentage of the various expenses as a proportion of turnover/ sales. Are there some expenses you could cut down on or is there another supplier you could use that could offer you better rates? Do you, for instance, send your invoices out by snail mail, whereas it would be more cost effective to email the invoices electronically?
Once you have done some analysis of your expenses, turn now to your business revenue. Did you meet turnover targets in the last six months? Are there particular times of the year when sales are higher and if so, what do you do to maximise turnover in those peak periods of the business?
Cash indeed is King, but every great King needs a Queen beside him – don’t you agree? Who is that Queen? The Queen is an accurate and efficient bookkeeping system in your business. With an excellent Queen at work, thorough cashflow analysis becomes so much easier and as a result the ‘King-dom’ expands: cash will increase and that is something we all want for our business.