Growing a business using 3 to 5 yr projections
Guest blogger Rohen Burton, Chief Financial Officer, Fit n Fast
If you are planning to grow your business, create cash flow projections out for 3 to 5 years. Once you have a base projection, save a few copies so you can do what if scenarios. What if I borrow more money now? What if I raise more capital? What if I speed up/slow down growth?
Follow the 31 day Cash Flow Challenge here and on Facebook.
Collect Bad Debts ASAP
Guest blogger – Rohen Burton, Chief Financial Officer, Fit n Fast
This might be obvious but try to collect bad debts / failed payments as soon as possible. And always target the low hanging fruit first. The highest collection rate for failed payments is immediate and then the rate of collection falls for every day that goes by.
Follow the 31 day Cash Flow Challenge here and on Facebook.
Set up a US Dollar bank account
Guest blogger – Rohen Burton, Chief Financial Officer, Fit n Fast
If you purchase from overseas suppliers (for example the US) consider setting up a Foreign Currency bank account. And plan to buy some currency when the rates are favourable. Don’t exchange more than you need and make sure your AUD cash flow can handle having this amount off sitting in another account. During 2011 there was an opportunity of saving over 5% just on exchange rates alone if they were booked at the right opportunities.
Follow the 31 day Cash Flow Challenge here and on Facebook.
Use Paretos 80/20 rule
Guest blogger – Rohen Burton, Chief Financial Officer, Fit n Fast
When reviewing the cash flow reports or producing cash flow projections use Paretos 80/20 rule. Spend your time on the most important cash impacts of your business.
Concentrate on these areas of the business for the biggest impacts.
Extract from Wikipedia
The Pareto principle (also known as the 80–20 rule, the law of the vital few, and the principle of factor sparsity) states that, for many events, roughly 80% of the effects come from 20% of the causes.
Business-management consultant Joseph M. Juran suggested the principle and named it after Italian economist Vilfredo Pareto, who observed in 1906 that 80% of the land in Italy was owned by 20% of the population; he developed the principle by observing that 20% of the pea pods in his garden contained 80% of the peas.
Follow the 31 day Cash Flow Challenge here and on Facebook.
Understand the impact of payment cycles on your business
Guest blogger – Rohen Burton, Chief Financial Officer, Fit n Fast
Cash flow projections are most commonly prepared monthly, however not all payment cycles are monthly. For example:
Even if you are projecting a profitable month the timing of payments, at different times during the month, may result in a cash outflow that you will need to cover.
Consider setting up an overdraft facility with the bank for these situations.
Follow the 31 day Cash Flow Challenge here and on Facebook