A short guide to ensure positive cashflow in business

It is important to keep track of a positive cashflow into the business, as its the basic lifeline. Some of the successful businessmen that I have known are very sensitive to “money” issues, and will count to the last cent – regardless of how rich they are. They would not take No for an answer when it comes to money and are meticulous on any issues related to it.

This is our checklist:

1) Cash versus Credit

Do not create unnecessary debt if possible. Cash is king – ask for cash upfront instead of going by credit.

2) Be “Mean”

Collect the debts as fast as (or faster) than you would pay your creditors. If possible, get someone else to be the bad guy if you do not intend to lose the customer or a poor-performing debtor. The creditors, whom you owed the money, will be tenacious when they try to collect the money from you. And if they are faster than your debtors, you might run out of cash faster than you think.

3) Be “Lean”

- Stock level: Is it getting too fat? Do we need to keep so much stocks? Are there better suppliers that can accept a lower MOQ?

- Employee: Is every employee fully deployed and working at 110-120% of their capable loading? (if they are surfing internet during office hour, they are underloaded, and overpaid). Can one person multi-task and perform more than his job position requires of him? (salary, benefits)

- Supplier: Are you paying too much for the same quality of material or components (product cost)?

- Infrastructure: Do you need that 40″ LCD screen at the reception (electrical bills)? Is that fountain necessary (water bills)? What can I do to maximise the use of every inch of the shop space (rental costs)?

4) Forecast the cashflow ahead for the coming month, based on the projected sales.

Easier said than done, and provided that there is a crystal ball that works. However, sometimes its possible to predict based on project milestones, e.g. estimated delivery and payment dates of a batch order.

In some business, they are able to project the cashflow 6-months ahead, for example a key customer cancelled the monthly orders.

Bookmark It