The Importance of Healthy Cashflow

In this second article which looks at ways to ensure strong regular cashflow in a business, Gilroy Gannon suggest some further ways companies may provide certainty and stability.

One of the most common mistakes businesses tend to make is the assumption that things will remain the same.

As the saying goes, “the only constant is change”. Just because cashflows were strong does not mean they will continue to be strong, just because a debtor always paid on time does not mean they always will.

Constantly monitor and adjust and when preparing cashflow projections prepare a second projection which is worst case scenario. This allows the business to text liquidity and the ability to pay wages and bills when payments cycles are longer or bad debts increase. Expanding too quickly can also place the business cash flow under pressure with additional costs which could include capital items such as equipment or premises or increased salaries, taxes and utility costs.

If you are considering scaling up it is crucial that you prepare projections on cost, revenue, cashflow and fully understand the potential effect on important metrics such as the B/E point and cost per unit.

This can be done by an accountant such as Gilroy Gannon so that there are no unpleasant surprises which affect growth. Understanding the difference between working capital and profitability are critical to understanding cashflow management and a cornerstone to financial stability.

As we detailed in the previous cashflow article it is important that where credit must be provided there is a clear system which is followed. Where debtors are not responding or are not following through on commitments the business must consistently follow up and take appropriate steps.
Business, particularly in Ireland, is a small world and if the company develop a reputation as a soft touch further credit issues will occur.
Research those companies you are offering credit to and follow up at each stage. Remember your business needs cash to pay for the current business expenses and accumulated profit which may be used to reinvest in growth and expansion.
Systems, Discipline and Consistency are key to this.

At Gilroy Gannon we blend nearly 50 years of business and accounting experience with the most up to date accounting practices to provide our clients with the best outcomes and concise relevant advice.

We understand how to grow and develop business and our specialist our specialist Audit, Accounting, Tax and Corporate Finance teams work with clients to deliver sustainable growth and strong foundations for businesses.

Make Business Better with advice, support and services from Gilroy Gannon
To find out more about managing cashflows call us on +353 71 91 61747 or visit our offices at 25 Stephen Street Sligo

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