5 Reasons Why a Healthy Cash Flow is Pivotal For Small Businesses

June 23rd, 2010 | Sophie de Somerville

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Most business owners will agree that cash is always king. Having sufficient cash is not only important to keep the business running, but also to fund future growth and investments plus having sufficient to fund ongoing finance requirements. This is where MYOB can assist your business in ways you may never have imagined.
In the first place cash should not be confused with profit. A business can be running profitably but still face periods where they have insufficient cash to pay for urgent purchases. This can occur as a result of seasonal downturns or delays in receiving payment for goods or services already delivered.

There are several accounting processes for establishing cash flow that can boost your capacity to manage cash. MYOB provides the resources to do this, and by attending any one of a number of MYOB courses you can learn the techniques you need to implement to bring this about.

Here are some things to consider when it comes to the cash flow in your business.

• Just because your business is profitable does not mean you have sufficient cash. Imagine you have two successive months where your sales are low. On paper, the business can still be operating at a profit in the current year, but with a temporary dip in sales there can be insufficient cash left in the bank account to pay things like wages or any ongoing operational expenses such as financed equipment for example.
• Unless you build up sufficient cash reserves to carry you over a lean period, your business may not be able to continue. You need to have practices in place that can predict any cash flow shortfall is and this is where helpful accounting software programs like MYOB come into play. If you have attended any of the many MYOB training courses on offer, you probably already know this.
• Many businesses fail to understand the real meaning of cash flow and mistakenly include long-term borrowings, or money owed by customers as cash when in reality these should be treated quite differently.
• When you are able to predict shortfalls in cash flow, whether it is because of seasonal adjustments or other known reasons, you can implement strategies to flatten out this curve. This can be achieved by an overdraft which can be used specifically for this purpose, or you can set aside cash during times of peak activity so that it is available to you in your bank account when it really matters.
• There are a few other short-term methods you can also use such as negotiating longer payment terms with your creditors, and implementing more aggressive cash collection procedures from existing debtors. In fact, these two methods alone can increase cash flow substantially.

The health of the business is not just a measure of its profitability. As we have pointed out above, a business can have a profitable bottom-line but still have insufficient cash to overcome periods of lower than normal sales activity. MYOB has the capacity to forecast periods of negative cash flow, and this can be one of the most vital tools your business can have.