Mastering cash flow management – AKA saving your house and marriage

As we run into the financial year-end for many Australian-owned SMEs, it’s a good time to look at how local companies have performed over another long business year.

The bookkeepers pass on the monthly accounts to the accountant to formally provide a snapshot of the business. So, it’s a time when many business owners realise that whilst the business looks good in the accounts, there’s no cash in the bank!

And that’s official, as a report from Dun & Bradstreet on dnbsmallbusiness.com.au highlighted this week, stating that cash collections and invoice payments are at their slowest rate for three years.

As a business owner, I have sat in many meetings over many years and looked into the abyss: a cash flow hole that has sneaked up on us. We diligently look at the P&L, take a cursory glance at that most confusing of documents, the balance sheet, ask a question or two, nod at our fellow owners and directors, then get back to selling our services or products to our customers or clients.

Well that’s what I used to do during the first two years owning my own business. Right up until the bank asked for the deeds to my house because we needed to borrow money in order to meet payroll.

It had all got out of hand very quickly. We, all the directors, not just the finance director, had lost control of the cash. And it took us 18 months of hard work to put the business back on its feet, cash back in the bank accounts and the deeds to my family’s home back in the hands of its rightful owners.

Almost 15 years later I take monthly finance meetings seriously and receive a daily report of the total payables, receivables and cash position of any company I am involved with. The cash cycle in a business is like breathing to an individual. Breathe in and breathe out, don’t hold your breath too often, and aim to never stop breathing.

This week I saw an outstanding piece of software designed to put accurate cash forecasting information into the hands of owners and directors long before cash flow holes appear. And the good thing is that it plugs straight into any finance package, via Excel.

First I have to declare an interest as I share two things in common with the owner of the company that has created this product, Castaway Forecasting. Firstly, he sits on the same advisory board as me; secondly, he too has looked into the abyss of a cash flow hole. In fact, he fell into it and that was the catalyst to build this cash flow forecasting tool.

Castaway is a small Australian-owned company that has built a good reputation with small to medium business owners, their finance managers and their accounting and bookkeeping providers.

It’s a simple to use tool that fits, I guess, 95% of business types whether they’re in retail, wholesale or professional services – anything that has customers, suppliers, employees, a bank of some sort and a tax man to pay.

I won’t attempt to explain it, but would recommend anybody who runs business to look at this or a similar tool. Using it might save your house and marriage one day.

Kevin Moore is a retail expert and the chairman of Crossmark Asia-Pacific Holdings.