5 Tips to manage cashflow over the holiday season

Over the summer holidays a lot of small to medium business will have a small to non-existent finance team as everybody starts to go on holidays – especially in Perth where the weather is so good.  And this concern is even more so for family business’s when a family member is given the role of either managing the cashflow or controlling the finance staff to manage cashflow.

If your team for the business is on leave the bills do not stop and neither do wages.  So, managing cashflow over this period when everybody is focused on the festive season is an important part of running the business.

Tip 1 – Have clean data to start with

While it sounds boring – the data in your books needs to be current and mostly accurate.  If your accounts are taking too long to close off the month or if the bookkeeper has a “suspense account” floating around in your books you simply cannot rely on the financial reports in your business to make a good business decision.

Set KPI’s for your finance team which includes timely reconciliation of data without large “clearing account” or “suspense account” transactions.

Tip 2 – the bank statement is not enough

A common temptation for a business owner is to simply read the daily bank statement to understand how much cash is in the business.

Sadly, as business becomes more complex the movement in your bank account builds and you cannot see large forward costs and cashflow movements by looking only at the bank statement.

When your business becomes more than you the forward forecasts are the only reliable reasonable way to identify how your cashflow will be impacted.  The increasing seasonality of business – including frantic trade or deep lulls – simply means that looking at a daily bank statement will not give you the forward position you need when the finance team are not around.

Tip 3 – It is too late if you run out of cash

A business can be solvent for a long period of time and be unprofitable.  However you cannot be insolvent and profitable – a lack of cash will mean that staff are not paid and the business will shut.

Getting on the front foot now, before the holiday season, to understand future cash crunches are important.  The bank manager may not be around over the break and you might not either.

So the time to prepare for a cash crunch is now – because it is too late when it happens.

Tip 4 – The set-up matters

The structured and clear set-up of your management reports is important to make the ongoing maintenance work properly.  If your business accounts have been set up poorly, with a dirty chart of accounts, incorrect opening balances or a chart of accounts that runs for pages no amount of attention by bookkeepers will help you understand your business.

Make sure that the person who sets your business foundation is qualified in business and accounting so that the bookkeepers can have a clear run at doing the routine task.  Navigating a bad set-up is difficult for bookkeepers and your finance team.

Tip 5 – the forecast is always 12 months out

If you are forecasting your cash position now for the holiday season it is good – but the forecasts should ideally be done 12 months in advance.  This will give you time to set finance terms with your bank, investors or family members with time to negotiate.

The technology on hand now that helps with forecasts (like Futrli) makes the process of understanding the horizon much easier than historical ways of doing so.

And if you have the capacity for a mature discussion about a possible cashflow crunch, in advance, you can negotiate much tighter interest costs rather than a panicked “take it or leave it” presentation during the holiday season.

At Westcourt we started our business.  We understand the emotion of setting forecasts and dealing with banks.  And we have the technology, experience and knowledge to help business focused families use their finance team to create forward looking reports that help owners make a future decision with certainty.

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