All entrepreneurs know that "Cash is King." How you handle the business finances is a key factor that will dictate success or failure. This is especially obvious for companies in a high growth stage. Ultimately, ensuring your business continues to succeed and grow comes down to the basics of cash flow management, which can be addressed by paying attention to three key areas: Cash Flow, Capital for Investment and Working Cash (or capital).

Cash Flow

Without positive cash flow, any company, no matter how promising the business model, will go bankrupt. Adequate budgeting and planning will help you stay in business, have more fun, and keep more of your profits. Today, Your company could have sustainable revenue and significant income, but if you have no real financial plan, you'll quickly find yourself facing a world of issues, all as a result of cash flow problems. If adequate cash flow forecasting and planning are not implemented, you'll soon stall or have to close the business, especially if your industry or your market becomes more competitive.

Investing for Growth

To grow your market and increase revenue, you need the right amount of cash invested in infrastructure, in hiring and in sales and marketing. Without a managed cash flow approach you may never be able to experience real growth that can produce enough revenue and profitability. Securing loans to make the necessary investment is not always a viable option so, achieving organic growth must be a core part of the plan to achieve this. A cash flow management plan helps you achieve this.

Working Cash (capital)

Managing your working capital requirements – the cash needed for day-to-day operations – allows you to remain nimble and weather potential slumps in the business. Without adequate cash on hand, you may be forced to drastically downsize operations, cut employees or even declare bankruptcy! With a healthy cash balance, you will be in a stronger position to survive these difficult periods and focus on areas that will allow you to stay competitive and in business.

Surviving Cash Shortfalls

• Negotiate terms with your banker when things are going well and your credit is excellent. Develop a good relationship in the event of a cash squeeze in the future.
• Sell excess inventory and assets to free up some cash flow.
• Communicate with your key vendors. Again, building relationships create allies. When you need to extend the terms of repayment or when you are under cash constraints those suppliers should be more agreeable.
• Renegotiate your leases with your landlord if necessary or look to sub-letting excess space ahead of time.
• Consider factoring your accounts receivables for short term cash if collections are slower than expected instead of waiting for the collections to slow down.

Key Cash Flow Measures

Monitor and report on the following:

• Days Sales Outstanding (DSO): Average Number of days to collect receivables from your customers.
• Days Payable Outstanding (DPO): Average number of days you take to pay your bills.
• Inventory Turnover: The number of times you sell or use your inventory in a period (monthly, weekly...) per annum.
• Cash On Hand: Total amount of accessible cash available in your bank account and line of credit (if applicable).