Tuesday, November 23, 2010

Cash Flow is the Pulse of your Business

by Anne Feeley
Affordable Accounting Services

 Cash flow is the life-blood of every business. If you fail to have enough cash to pay your suppliers, creditors, or your employees, you’re out of business.

Cash flow is concerned with the timing of the movement of money. Inflows occur when you make a cash sale, collect from debtors, have investment income, or borrow money, etc. Outflows are generally the result of paying expenses such as wages, stock, taxes, purchasing fixed assets, etc. Cash Flow is not the same as “profit”, which is a snapshot of income and expenses at an event or over a certain period of time. You can make great profits, but if it’s all in accounts receivable, you have no cash to pay your daily expenses.

Four basic but important components to examine:

Accounts Payable & Cash Flow

Accounts payable and cash flow: Without payables and trade credit you'd have to pay for all goods and services at the time you purchase them. For optimum cash flow management, you'll need to examine your payables schedule.

Ensure you are purchasing at the best deal you can get. If you can’t get a better price, get better terms.
  • Ensure you get appropriate discount for early payment.
  • Only pay on the due date and not before.
  • Review contracts to ensure you only pay for what you want/get.
  • Negotiate volume discounts.
  • Review supplier contracts on a regular basis.
  • Aim to reduce the number of suppliers to leverage spend and prices.

Accounts Receivable & Cash Flow

The longer it takes for your customers to pay on their accounts receivable, the more negative your cash flows will be. Stay on top of your collection efforts.

  •  Issue invoice straight away and ensure it is correct.
  • Have the sales person do the collecting of cash.
  • Link any bonus to cash collection.
  • Review credit limits on a regular basis and reset based on current, not past, levels of business.
  • Implement strict early payment discounts.
  • As soon as credit period elapses have a regimented debt collection procedure in place.
  • Initiate credit collection procedures before invoices become due.
  • Trust your instincts. Sometimes it might be better to take less than 100% to get the cash rather than wait and/or never get the amount owed or go through expensive litigation.

Credit policy and terms form the blueprint you use when deciding to extend credit to a customer. The correct credit policy is necessary to ensure that your cash flow doesn't fall victim to a credit policy that is too strict or to one that is too generous.

Stocks & Cash Flow

An excessive amount of stock hurts your cash flow by using up money that could be used for other cash outflows.

  •  Don’t order more unless absolutely necessary.
  • Enter all stock on your system as soon as it is received to ensure full transparency.
  • Identify slow moving stock and repack, re-price, re-use to generate cash.
  • Renegotiate lead times from suppliers and reset minimum stock levels and order levels accordingly.
  • Negotiate consignment stock from suppliers.
  • Introduce/modify approval levels for stock purchases.
  • Discontinue slow moving / loss making product ranges.
  • Ensure ownership and accountability exists for every item of stock (i.e. stores manager)
VAT & Cash Flow

  •  Ensure you claim any VAT re bad debts written off in your VAT return.
  • Process supplier invoices as soon as they are received/issued.
  • Consider timing of invoice issue at month end to optimise credit on VAT return.

Four tips on managing your cash flows:

1. Contingency plans. You should keep three plans at hand.

a. Cash flows requirements when business is going according to plans.

b. When business is slightly lagging.

c. When business is hit hard (such as during these economic times).

2. Cash Forecasting. Forecast, make a budget, stick to it. Modify your budget only after thorough ongoing reviews of your cash flows and remember to include expenses that may not be due each month, such as annual insurance premiums and taxes.

3. Spending Controls. Make sure you carefully negotiate leases and look for price quotes. Frequently analyse operations.

4. Add Employees cautiously. Actively seek ways to maximize your and your employee’s productivity. You may also want to remember to consider alternatives such as outsourcing.

Cash Flow is the lifeblood of every business. The concept is much broader than that of profit, alone. Close monitoring is critical to success. You must have a firm grasp on carefully monitoring and managing the cash-flow pulse of your business. For more information on Anne Feeley, Affordable Accounting Services see http://www.affordableaccounts.ie/  or call 071 9174132 / 087 9719606. See our Facebook page at http://www.facebook.com/pages/Affordable-Accounting-Services/167511786616146?v=wall

Friday, November 12, 2010

How to lower your insurance costs

by Enda Candon of Firstwestern

Insurance is one of those dead money costs that we all in business have to have, but in many cases consider it as dead money as we rarely get an economic return on it. Cost containment and control are essential in these tough economic times, so a saving on any overhead is welcome. Here are some practical tips that we have used with clients to save them money on their insurance costs. In cases we have helped achieve 25% discounts on individual policies.

Increase your excess

Raising the excess on your insurance policies usually lowers your premiums. This can lead to savings of up to 10% on policies.

Bundle your Policies

Even though your policies may fall due for renewal at different times of the year, bundle all your policies and ask insurance companies / agents to quote you for all of the business.

Use a Broker

Work with an Insurance Broker to help you figure out what coverage you need and get it at a competitive price can be a good option, if you are unsure of the precise cover you need. An independent agent or broker is paid by commission, but will shop around to find you the right coverage at the right price.

Reduce Risks

Risk management minimises your insurance claims and brings your premiums down. Implement procedures to make sure that you aren’t taking on risky employees—for example, by checking the driving record of anyone who will drive for you. Many companies offer lower premiums or discounts to policyholders who take certain safety precautions. Installing smoke detectors or a security system is a couple of steps you can take that may get you a lower-priced policy. Always make sure that your business is adhering to relevant legislation such as health and safety and employee legislation as in some cases insurance can be invalid if you do not.

Levels of Cover

Evaluate all your insurance policies for their risk/benefit, and decide which ones you think you will really need. Don't over insure. Do you really need cover for old and low value office equipment and computers?

Motor Insurance

Consider dropping collision cover on older vehicles. If the car is only worth €1,500, why pay €200 per year extra for collision cover.

Prioritise your Greatest Risks

Once you’ve dealt with required coverage, spend your money where you need it the most. If you face a serious risk of a loss that could wipe you out, put your insurance cover there first.

Don’t Duplicate Coverage

A business can have so many policies in place that you may find some things being insured more than once. For example if you have only a few relatively inexpensive pieces of business equipment, your existing property coverage may be adequate. Or, you may be able to purchase an inexpensive endorsement to increase your coverage. Review all your policies carefully, or have your broker do this. Eliminating dual coverage should save your money.

Group Insurance Schemes

If you belong to a trade organisation, professional group, or other business association, you may be eligible for special rates on certain types of insurance.

See the first western blog at http://endacandon.wordpress.com/

Contact Firstwestern at http://www.firstwestern.ie/ or e-mail: Info@firstwestern.ie phone: 071 912 2834 http://ie.linkedin.com/pub/enda-candon/6/839/224