Authors: Gail Fitzpatrick – Director Pittwater Business Ltd and manager at Bendigo Bank Belrose.
Many businesses are feeling the pinch in today’s economic climate and one area that can be affected is cash flow. The early warning signs of potential cash flow problems vary markedly across different industries as do the solutions. Despite having a great product or service and being profitable, if you’re not being paid you’re out of business!
One of the first indicators that a business may have a cash flow problem is that the overdraft is not fully fluctuating. That is that it does not return to a zero balance over a period of time.
Ramifications of poor cash flow management can include:
Time management: the distraction of dealing with creditors’ calls, negotiating instalment plans and managing the shuffle of funds.
Reputation: the bush telegraph is a very efficient system which will damage your good reputation.
Loss of advantageous terms: suppliers will be reluctant to persist with a slow payer and will reduce the payment terms offered to you.
Penalties and Interest: late payments of taxes and bank fees and charges can be severe especially for cash strapped businesses.
Exposure of Personal Assets: Suppliers with guarantees and the ATO can pursue you personally in the event that your company is unable to meet its commitments.
Stress: not only on the business owner but your friends, family and loved ones can suffer.
If you are uncomfortable with your current cash flow situation then it is important that you take steps to improve your position. Talk to your Business Banking Manager and discuss your cash flow sensitivity and how you can avoid a potentially disastrous situation for your business.
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