Do you have a solid plan for maintaining steady cash flow?
One of the keys to running a successful business is the ability to consistently make more money than you're spending each year. Unfortunately, the challenges don't end there – even if your company is breaking even on paper, that doesn't necessarily mean you have the money in hand when you need it most. The other challenge you need to address is cash flow.
Balancing your ledger is important; the other challenge you need to address is cash flow.
Simply having invoices out and payments owed to you is only half the battle. Actually collecting those payments is the other half, and if you fail to follow through on this step, it might be difficult for your company to stay afloat. Numerous logistical problems are sure to come along.
How can you prevent this from becoming an issue?
Forecasting your company's cash flow
The process of business development is largely about making sales and bringing in revenue, but that's not all there is. According to the Western Australia Small Business Development Corporation, you need to forecast not only sales, but cash flow as well. When exactly do you expect to collect the debts you're owed?
If you have a plan for bringing in payments month by month, you can periodically check in and make sure your actual results are matching your projections. If not, you know it's time to make some strategic changes.
Ensuring you've got the cash on hand
If all you're doing to maintain financial stability is balancing your ledger, you risk missing crucial payments that are needed to keep your business afloat. If pay day arrives and you don't have the money to dole out employees' wages, that can mean big trouble.
Additionally, the Australian Taxation Office warns that managing cash flow is important because you need to have the money on hand to meet your tax expectations. If you aren't able to pay goods and services tax, payroll tax or anything else you owe the ATO, you might find yourself with serious regulatory compliance problems.
Getting help with projecting your business
Figuring out all the details of your company's cash flow can be complicated. If you're not comfortable handling this challenge on your own, that's not a problem – you can reach out for help from chartered accountants. At Wilson Porter, we have a great deal of experience preparing budgets and examining companies' cash flow.
The hope is to get your company's cash flow to a point where you can be successful in perpetuity. If that's possible, great; if not, we can also help with examining your options for restructuring your business. Talk to us today if you'd like to begin either process.