Published on Queensland Business Review, Tuesday 21 September 2010

A lack of sufficient cash flow is one of the most significant issues which is currently causing businesses across all sectors to be placed under duress, according to a leading Brisbane accountancy firm.

elliotts’ Managing Partner Matthew Schlyder says a lack of available cash flow in business results in a number of issues, including a business struggling to pay creditors, employees of the business, and the business owner.

“The problem is, for most business owners, keeping track of their expense and revenue items, each operating according to its own highly uncertain timetable, can be a difficult and stressful exercise, and this is why cash flow management is failing to be done properly,” Schlyder says.

However, he says preparing monthly cash flow projections is just one of the things a business owner can do to put their business on a steady cash flow footing.

“What many business owners fail to recognise is that profit and loss statements and balance sheets prepared from their internal accounting program focus on book profit, not cash.

“Whilst it is vital to focus on the business’ profits and asset position, it is also important to understand the flow of cash in and out of the bank account.”

According to Schlyder, the cash flow improvement formula for a healthy business should aim to drive debtors down, drive stock holdings down and maintain creditors at terms.

By doing so, he says, surplus cash exists to make asset purchases, pay debts, and pay dividends and drawings to owners.

Schlyder suggests cash flow projections be prepared for one to five years as a minimum, depending on the business’ needs.

“I would also advise businesses set their credit terms for customers carefully and ensure that they follow up with customers if they exceed these terms,” he says.

“By the same token, pay your creditors on time, taking advantage of their credit terms and any discounts offered for early payment.”