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The Cash Flow Tsunami — How to Recognise Early Warning Signs

Tuesday, February 14, 2012   By Mike Reddy

 



A successful business is one that is well managed. Being adaptable and flexible before major fluctuations occur can greatly assist you in hard times.

Recognising problems before they arise can minimise the fall out and pave the way to a faster recovery.  One of the most important jobs for any business coach is to help clients learn to identify potential cash flow problems as this is critical to your success as a business as without adequate cash flow your business may be on its way to becoming a statistic.

Look out for slowing sales and reducing inventory turnover. Simply put, stagnant inventory is a cost to any firm whether it is raw materials or work in progress. So it doesn't really matter if you're in the business of retailing, or if you are a manufacturer or service provider.  And it also just happens to be why our business coaching health check includes a watching brief on these.

Watch for any economic signals and take heed when placing inventory orders. Be mindful of the industry that your customers operate in and satisfy yourself that they will be able to honour their obligation to pay you.

A dwindling bank balance is not necessarily the result of market forces. It can relate to poor decision-making when funding the purchase of a large asset and can even result from undercapitalisation or poor working capital management. Better management can result in cash previously locked up inside the business being made available for investing in opportunities to grow the business.
 
Watch your key performance indicators and take corrective action to leave your business in a better position. It is important to achieve the outstanding results while your competitors are struggling.

Your key performance indicators and your profitability, solvency and other important financial ratios can serve as useful financial barometers; much like weather forecasts can convey a general idea of what is to be expected.

Incidentally, we have some very useful business coaching resources available with which to conduct a quick (and free :)) business health check over your business which will give you either a sense of comfort or the specific areas that you should focus on to improve your business results.


Mike Reddy is a Chartered Accountant, business coach and advisor helping businesses in Sydney, Melbourne, Brisbane and Gold Coast to easily increase their profits and cash flow. He is currently President of the North Sydney Chamber of Commerce, a Regional Councillor for Sydney North East and a member of the Institute of Chartered Accountants Sydney leadership team. As well as advising businesses, Mike presents business development seminars and webinars and is regularly contacted by the media to comment on small business matters. You can connect with him on Facebook, Twitter and Google+.