Managing cash flow is one of the biggest issues a business can face. But remember, you’re not alone – even the best in business today admit to struggling with cash flow in the early days.
Business magnate and investor Richard Branson, who founded the Virgin group in the 1970s, advises to “never take your eyes off the cash flow because it’s the life blood of business”.
Jack Welch, chairman of General Electrics from 1981-2001 who expanded the company’s market value from $14 billion to $410b, once said: “If I had to run a company on three measures, those measures would be customer satisfaction, employee satisfaction, and cash flow.”
The philosophy is as relevant today as it was then.
Australian businesswoman and founder of Boost Juice and Retail Zoo Janine Allis says success is really quite simple when it comes to watching your money.
“More money has to come in than what is going out and that is all you really need to know in business,” she says
“Nothing actually matters other than what you physically have in the bank account, what bills you’ve got coming and making sure you can afford them.”
“You can try and make it more complicated than that, but it actually isn’t.
“Yep, you need to understand what goes on the balance sheet later and what’s an expense and what goes in the profit and loss but that won’t make your business successful. Having more money in than going out, in the simplest terms, is what successful businesses do.”
So how often should you actually check your cash flow? Is it hourly, daily, weekly or once a year?
Well it depends on your business, says Allis, and what stage of the business you are at.
“For example, if you’re in selling houses or cars, then maybe not watch it daily because nothing will be happening,” she says.
“If your business has say e-business then you might need to be looking at it hourly because you need to understand your customers – when they come in, when they purchase, what they are purchasing, so you understand their habits.
“If you’re in retail then maybe it is daily. Is there a time when they purchase? Is that one of the purchasing habits?
“Different businesses need to monitor the cash flow differently, but what you do need to do on a monthly basis without fail is do a bank reconciliation to make sure what you think is in the bank is in the bank and so that is probably the most important thing you need to do.”
Allis says with the benefit of hindsight, she can now be adamant that you check your cash flow and bank balance regularly.
“Most of the best lessons are things that you have done wrong,” she recalls.
“I remember doing a bank rec and not even knowing I should do a bank rec until someone told me I should do it and then realised I had to go through about six months’ worth of bank rec, which took me about five days.
“It was a nightmare finding where that payment was, what was missing. I found out there were double payments. I found out people hadn’t paid me when they should have or when they told me they had.
“From then on it monthly as a small business, but as a big business it should be daily.”
