Positive cash flow: This occurs when the cash is coming into the business from sales and accounts receivable – is more than the amount of the money leaving the businesses through accounts payable, monthly expenses, salaries, loan repayments and other the various business expenses.

Negative cash flow: This occurs when your outflow of cash is higher than your incoming cash. Generally, this spells trouble for a business, but there are steps you can take to remedy the situation and generate or collect more cash while maintaining or cutting expenses.

Achieving a positive cash flow requires planning and work. The business firstly needs to analyse and manage cash flow effectively to have control of incoming and outgoing of cash. The undertaking cash flow analysis is literally to make sure you have enough cash each month to cover your obligations in the coming month.

Profit does not equal cash flow. You can’t just look at your profit and loss statement (P&L) and get an accurate picture of cash flow. Other financial figures feed into factoring cash flow, including accounts receivable, inventory, accounts payable, capital expenditures, and servicing of debt. Smart cash-flow management requires focusing on each of these drivers of cash, in addition to your profit or loss. It’s critical, and very few businesses or owners have realised but knowing whether the company has earned any profit (or even created a loss) is not the same as knowing what happened to its cash. Profit, as defined by the rules of accounting, merely is revenue minus expenses. Invoicing a customer or client for products or services sold to them only creates the revenue. The collection of money on that invoice is what creates cash.

Positive cash flow is critical to generating profits. The business will always need enough cash to pay it’s employees and suppliers so that products or services are supplied. However, if the business does not have the money to provide services or goods – there is no profit. So all companies big and small need to structure their business to have a positive cash flow if they want the business to grow and increase profits. Building a business puts a considerable strain on cash flow. Almost all companies have to make some investment in certain expenses before achieving higher revenue and increased cash flow that comes with successful growth.

Most businesses see growth as the solution to a cash-flow problem. That’s why they often achieve their goal of growing the business only to find they have increased their cash-flow issues in the process. Planning for growth and the related cash outlays in advance is fundamental to a successful business.

Collecting receivables – the timely collection and receipt of receivables are paramount. Keeping customers to paying within terms. Keeping debtors days to an absolute minimum is critical.

Businesses often have to extend credit to customers, particularly when starting out or while growing. This should be managed carefully and researched to determine the risk of extending credit to each customer. Are they able to pay their account on time? Is their business growing or faltering? Are they having cash-flow problems? Perhaps a recommends a report on potential customers and ask them to fill out a credit application. Always check references. Another option is to consider accepting credit card payment. It will cost a percentage, generally from 2 to 5 per cent of the sale.

When a business needs more cash, it always seems simple to attempt and attract new customers. Sell additional goods or services to the existing customers. However, the reality may be harder than the theory. New customer acquisition is essential to growing any business, but it can require a fair amount of already stretched resources, time and money to convert prospects into sales. Selling more to existing customers is cheaper, and you may be able to do this by analysing what they’re buying and why – information that may even lead you to increase your profit margin and, hopefully, generate more cash. However, the SBA warns businesses to be careful when growing sales because you may improve your accounts receivables and not actual cash if these sales are on credit.

One option for increasing cash flow is to offer your customers discounts if they pay early. While this practice may impact your profit margin, it may help your management of cash flow by incentivising customers to make payments earlier than billing cycles typically require. Your company may also take advantage of this with suppliers and others that you owe, but be careful that your early payments of debt don’t leave you with a cash flow shortfall. Incentives such as early settlements discount to customers if they pay quickly can also be implemented.

Short-term cash flow problems may sometimes necessitate a business taking out a loan from a financial institution. Some possible types are revolving credit lines or equity loans. Most of the time this type of borrowing accomplishes its goals, although during the financial crisis many banks were cancelling credit lines and calling in loans. Another option is a long-term amortised loan which includes interest and principal until the loan is paid off.

The solution to this? Well, each business is different and depending on the situation required, a full diagnostic of the whole company can be what’s needed. This would always include a go-forward approach. It is amazing how with a little assistance what quick recoveries are able to be accomplished. We offer no-nonsense common sense approach. 

By focusing on a few fundamentals, Business Solve will quickly assist you in determining a current snapshot or CSA ( Current State Analysis ) of your operation. Depending on the time frames involved, many strategies will be considered. We will analyse and prepare a short-term cash flow projections. Estimate the cash needs for the next two to three months to set priorities. Identify ways to reduce expenses. Prioritise payments, determining the crucial ones. They’re the ones that you can’t operate without. Review staffing levels make sure every employee contributes to the business.

These few points are only the beginning of undertaking a turnaround; it can seem like a huge task. It can be extremely stressful for all stakeholders. Especially the directors and shareholders. Some considerations – Are the current managers capable of undertaking the project alone or is short term help needed. Turnarounds require different skill sets and experience in this area is critical. While your current people might be great at day to day normal business processes, a turnaround project is very different. Business Solve has that experience and knowledge to assist. We have access to the best resources both internal and external.

Get The Right Advice And Explore The Options For You And Your Business 

You are insolvent if you cannot pay debts when they become due – (either now or, because of some contingent liability of the business, in the future) or if your assets are worth less than your total liabilities. The first is sometimes called ‘cash flow insolvency’ and the second ‘balance sheet insolvency’.

Having a profitable business is not, in itself, a guarantee that you will not be insolvent. cash flow problems — for example, if customers fail to pay money they owe you, or if you over-invest in equipment — that mean you cannot pay your debts as they fall due could mean you are insolvent, even though the business is healthy otherwise.

The consequences of failing to take the proper steps once your business becomes insolvent can be dire and could affect you personally whether you are a sole trader or a director of a company. It is essential that proper advice is taken from a professional specialising in insolvency, at as early a stage as possible, to ensure that you minimise personal exposure. Blindly trading on in the hope that you will be able to turn the business round may prove very costly to you personally if it does not work and you actually might even make the position worse.

There are several debt solutions available if you are insolvent. These are legally binding, so they give you protection from your creditors and write off some or all of your debts.

Each insolvency solution is different, and as such, each has its unique qualifying criteria. In most cases, insolvency solutions are only suitable if your debts add up to more than the value of the assets you own.

There are many reasons when it becomes necessary for a business to cease trading or re-structure. Often a large, bad debt, loss of key customers or fundamental cash flow problems necessitate action.

Cash flow at crucial times is the key to any business. Many viable companies that go into insolvency could have been saved, given access to appropriate advice and funding lines.

Contact Business Solve Today And Let Us Explore The Options For You And Your Business To Get Back Into Profit

Refinancing is an area of business and financial management that is often rushed and not thought through properly. We have seen many situations where business owners and companies have made poor short term decisions that have had a massive negative impact on the company or even the directors personally.

We believe in looking at the bigger picture when any refinancing is considered and undertaken. It sometimes can be strategically the worst option financially in the longer term.