Cash Management

Companies fail for all sorts of reasons. Our research has shown that more than half of all failures are due to poor financial management. However, whatever the ultimate cause, almost all liquidations occur because the money runs out. So cash management should high on the list of things the small business manager does something about every day.

Keep It Simple’s three golden rules of cash management are:
- More money is better than less money
- Money today is better than money tomorrow
- You can only spend it once

Obvious? Sure, but what does it mean in the real world?

More money is better than less money.
Don’t sell too cheaply. If you provide a service that customers want, they will be prepared to pay a fair price for it. Small businesses are always nervous that putting up prices will scare away their few precious customers. To which my answer is “try it and see what happens”. Increase prices by 10% or 20% on a select range of items. Carefully monitor the reaction of existing and prospective customers. You may find that sales are down but hopefully profits will also have increased, leaving you better off. You should always be experimenting with price.
A variation is to sweeten the pill with an additional benefit, something that will be worth more to the customer than it costs you – an additional warranty or extra service, perhaps.

Money today is better than money tomorrow.
Many small businesses find it notoriously difficult to collect the money that is owed to them. Remember, a sale is not really a sale until the cash hits your bank account. And a good customer that doesn’t pay can quickly turn into a big liability.
Make sure you have a credit policy. Set credit limits and agree payment terms with your customers. Invoice promptly and accurately. Make sure you have a system for tracking and chasing outstanding invoices and follow it every time.
If you’re not prepared to ask for payment, then you shouldn’t be in business.

You can only spend it once.
So think about it first. Understand the value of everything you spend money on. If it doesn’t contribute to the bottom line, why are you buying it? If you don’t need it now, why are you buying it now?

Cash really is king and if you don’t take control of it, you will become its victim.

Business Link
Cashflow management
Identify potential cashflow problems

AIB bank
Managing cashflow

Small Biz Accounts can help you put systems in place to improve your cash management