Cash is Still King

Cash is still King

 

We are in an age where we are carrying less cash in our wallets, using mobile contactless payment methods, and most banks are no longer accepting cheques – however the old saying “Cash is King” is still as relevant as ever.

It is of course important that businesses mind their cash – think of your business as a body, your cash is blood flowing through its veins keeping your business alive. In an economy where inflation is reaching 30-year highs, unemployment is at record lows, and the well-publicised global supply chain issues are causing havoc across most industries, the notion of minding your cash becomes critical.

Understanding your cash conversion or working capital cycle is critical to managing cash in your business.

Cash conversion is the length of time it takes you to convert cash spent on inputs (wages, inventory, accounts payable), into outputs (sales to customers).

It not only dictates how quickly you can grow your business by purchasing assets to expand, but also what you as an owner can draw from the business.

On a practical level, implementing some or all of these options for managing and improving the cash position in your business could really help:

 

  • Review Credit Terms offered to Customers – do your customers understand clearly when they are expected to pay?
  • Systems – do you use an accounting system to send prompt invoices, statements, and automated reminders? Send the nudge without having to lift a finger.
  • Payment Gateways – integrating systems like Xero with Stripe or GoCardless can result in payments being received twice as fast, removing barriers to payments.
  • Reporting – review Aged Receivables reports to ensure debt is being collected, and any regular late payers can be addressed.
  • Look to utilise/maximise Credit Terms with Suppliers – it is critical payments are made to ensure relationships aren’t soured but maybe you have more time than you realise.
  • Match funding with Asset Lifecycle, if you have fixed assets explore if there is a long-term payment facility. This will often result in lower finance costs and free up cash for day-to-day operations.
  • Systems – utilise your accounting system to receive invoices directly from suppliers, or the Governments e-invoicing system – knowing what bills you have coming up sooner will help you plan for these and avoid nasty surprises.
  • Forecasting/Reporting – do you compare your budget to your actuals? This can help in identifying where gaps or overruns exist in your business.

The list above is by no means exhaustive, and each business will have unique challenges to face. Understanding some of the key items of your business cash conversion cycle will help you solve cash problems, or leave you with more money to do the things you want. Once the key components have been identified, preparing a cashflow forecast becomes easier. This will enable you to plan for tight periods (Christmas / New Year),  see when you might have surplus cash available to purchase new equipment, pay down debt, or recover any money you might have contributed via your current account.

For advice specific to your personal situation please speak to your relationship manager or give us a call 0800 282 887, together we can come up with a plan for you.

Get in touch or book a free review.

 

You might also be interested in:

Explore more articles

SUCCESS STORIES

Auctus communicates clearly where we are at and how we can improve our systems to better grow our business

SUCCESS STORIES

We feel that Auctus’ services are integral to the success of our business. They take the stress and guess work out of doing it ourselves. And always works with total integrity and a passion.

If you would like to start your journey, know that we are here for you – to have those deep, vital conversations to build a successful relationship and safely guide you down the road ahead.

We want to make sure you have the right business support to build the right foundations for success. This is why we personalise our services to suit you: our client.

Accounting & Tax Advisory & Innovation Specialist Services Small Business Accounting Medium-Large Business Accounting Package Services

When you join Auctus, you become part of our regional network, where you receive local knowledge and information, with national awareness and support. We’re your gateway to success.

Auckland Hamilton Napier Tauranga New Plymouth

Provisional Tax – Avoiding the pitfalls

Provisional Tax – avoiding the pitfalls   If you are liable for provisional tax and you don’t pay, underpay, or pay the tax late, you may be liable for both...

SUCCESS STORIES

We love the ease of dealing with the Auctus team from digital platforms to payment systems – its easy.