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Cash is king

posted 14 Oct 2010, 21:48 by Leighton Hill

Cash is the life blood of any business. Without cash a business cannot operate. Yet so many small businesses leave their cash flow performance to chance. They fail to manage purchases and sales transactions in a manner that benefits cash flow performance.

Ask yourself: 1) what is my business's cash flow, 2) what are my debtors days? 3) what is the average debtor days for my industry? 4) how much credit do I get from my suppliers?

If you know the answer to question 1 congratulations, you most probably have a good handle on your business cash flow. If you know the answer to questions 2 and 3, how does your debtor days compare to the average? And, if you know the answer to question 4, well done indeed.

If you were not able to answer the questions above there is every chance that your business's cash flow is a hit-and-miss affair and can be improved.

If you were able to answer the questions above you should ask yourself whether the answers were satisfactory: what should your debtor days be? They should be as low as possible. Don't simply be guided by the industry average, after all you don't want to run an average business do you?

So what is low? That depends on the type of business you run. If you can get paid before you deliver the goods or services your business provides then debtors days will be 0. Unfortunately, not all business models are in that happy position. But, ask yourself: could it be? Could you change the way you operate? How do you charge your customers? Can you change this? Can you improve this?