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Cash Flow is King

by accountingcpd

It's often said that cash is king but, in SMEs, it's cash flow that is king. The business might look good on paper with regards to turnover and profitability but if you havenít got the cash to pay for the necessary associated expenditures then you've got problems.

A sale is not a sale until it's been paid for. You might be making a profit on paper but is the cash actually in the bank yet?

Whether you're an accountant in a small business or in practice advising small businesses, you need to ensure the organisations is running as efficiently as possible in order to reduce the risk of it failing altogether.

Here are some tips on how to maximise cash flow efficiency:

1. Go digital where possible

Embracing digital systems can often make it easier to monitor cash flow and spot issues earlier. In the UK, there is a government initiative called Making Tax Digital which will require all businesses to go digital in future.

2. Make the most of tax relief opportunities

Whatever country you are based in there are sure to be tax relief opportunities you should be making the most of. Research them and make sure you claim for all those that are relevant.

3. Leverage R&D tax credits

If there is any aspect of R&D to the business activity you can probably claim some tax relief on its cost. In the UK £1bn in tax credits goes unclaimed every year!

4. Analyse your sales trends

You may not be able to predict the future but you can get a good idea by looking at what's happened in the past. Are there any seasonal sales peaks and troughs that need to be factored in? The more you know about what's likely to happen to more you can plan for it.

5. Check buyer's credit history

This is particularly relevant if you are mostly business to business as these type of customers tend to pay later than standard retail customers. Factor that into your analysis and planning.

Ultimately, actively managing and improving cash flow improves the business's buying power - it is an indicator of a company's financial health. The healthier you are the more chance youíve got of a good deal.

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