Business owners are busy operating their business. As a business owner, you set for yourself to improve sales and improve the profitability of the business, however there is an inherent risk of running any business and hence reported profits as per the books or your financials are not absolute, if you don’t realise all the profits in your bank account.
There are multiple reasons why the cash in your bank doesn’t match the profits in your financial statements, one of the reasons is that you are prompt with paying your vendors but too lenient in collecting from your customers also you would have Hired staff unnecessarily instead of outsourcing hoping for new business and invested in obsolete technology as well as taken up additional space to store your inventory.
This leads to a situation where your commitment towards expenses are fixed however your revenue generation and the realizability of the revenue is uncertain. These are some of the situations when you would be struggling because of not having a predictable cash flow-
Getting a project which requires substantial working capital
You may have to invest on a new technology to get ahead of your competitor
Hire a team member who is the talented to take your business to the next level
so all these decisions cannot be taken just by looking at profits in your books, the cash realisability will decide if you can really afford the cost involved in such decision making. As a business owner if your decision does not factor in the cash availability as well as realisability you will be taking decisions with a gut feeling and hoping for success in uncertainty.
We recommend following steps that you as a business owner should follow so that you take decisions and grow your business with confidence
Draw up a budget involving costs and revenues and the realisability
Look at the history and categorise your customers or vendors
Create key result areas or KPI's for your staff
Create multiple bank accounts for specific requirements
Have automation tool to reduce your involvement in the business and enable you to work on the business
Use technology to have better insight into your business
Have proper record keeping mechanism so that every detail of your business is captured
Have talented accountants negotiate with customer and vendor on credit terms
Follow the budget strictly
For more information and guidance on how you can do this for your business and also enable you to work on the business and grow your business on a faster rate please write to us on the below address we will be happy to help.
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