In strategies for business success we discussed the need for implementing certain strategies necessary for business success. You will recall that one was identified as being vitally important. We also mentioned briefly that success would be determined and results measured by four factors. It is timely to review those now if you haven’t noted them already. More importantly those four factors themselves depended on one vital strategy or element. Let us discuss that in this article:
Success Strategy One: Effective Cash Management
This element of business operation is vital; all businesses should practice it three hundred and sixty five days of every year for above all else, quality cash management is essential to optimise profit. If the cash flows of a business are not managed diligently, the effects of interest primarily, together with a range of other negative influences will be unnecessarily large and in most cases seriously, if not terminally damaging. Cash management is a KEY executive task. Here then are the essential elements of effective cash management.
A detailed monthly cash flow / budget (Some businesses will produce these even more regularly). Monthly should be regarded as an absolute maximum cycle.
- You must ensure your customers pay promptly.
– You must vigorously control the amount of money tied up in stock and work in progress.
– You must ensure that the business overhead costs are affordable.
– You must ensure that adequate and appropriate finance facilities are in place.
– You must ensure you conduct regular monitoring of actual business performance against the cash flows and budgets
You must practice regular and meaningful dialogue with the key people representing your Suppliers and Financiers.
In summary your primary executive focus is to ensure that each of these cash management fundamentals is practiced regularly and diligently. Methods for each of these will be expanded upon in latter articles. The fundamentals are not rocket science, and in keeping with the style of this series, simplicity both for the understanding of, but more importantly for their implementation in your business will remain the criteria.