+64 9 520 9200      enquiries@alliott.co.nz

The Business Advisory Blog

Welcome to our blog

Insight, news and updates from Alliott NZ Chartered Accountants, Auckland New Zealand. The views expressed here are the views of the author and should be discussed in further detail should an article be relevant to your individual circumstances.

While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents.  Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.

Email me when new posts are made to this blog

Managing cash flow Pt 2

Written by Greg Millar on September 18th, 2017.      0 comments

Plan for demands on the business’ cash flow that do not appear on the P&L

Many business owners find there is a profit on the profit and loss account (P&L) but no cash in their bank account.

budget financials laptop-902It is important to understand why that is happening (the team at Alliotts can help) but also to plan for non-P&L account cash demands in the upcoming period. For example, none of the following cash demands would appear on the profit and loss account for your business:

You need to buy a new machine and because you have just had a great month, you write out a cheque for $50,000. Who needs finance when cash flow is so great?

The term on your car loan is up and you send the balloon payment of $11,500 to the financier.

You are about to celebrate your 10th wedding anniversary so you pull $20,000 out of the business as drawings to pay for a round the world cruise.

You are developing software in your business and you’ve been advised by your accountant to capitalise it (meaning it appears on the balance sheet rather than the profit and loss account, and is depreciated over a period of time.) You spend $40,000 on development in the period.

If you are not aware of this, you will find that your cash balance will increase by approximately $120,000 LESS than your profit — maybe more if compounded by other issues such as customers paying you more slowly than they did last year. This can cause real strain on a business’ cash flow if it is not planned for in advance.

Consider refinancing your debts

Many businesses carry credit card debt, which is extremely expensive. They may also have a couple of different business loans on their books.

If you find you are being hit with significant loan repayments and hefty interest charges, talk with the team at Alliotts about refinancing. Depending on your circumstances, you may be able to consolidate your debt into one business loan and possibly secure a more favourable rate of interest to boot. This could help reduce your outgoings, which is of utmost importance when you are faced with seasonal variances in your business.

Prepare a detailed cash flow forecast and budget

If your business is seasonal or prone to cash shortfalls, talk with Alliotts in Auckland on 09 520 9200 about a three-way cash forecast and budget.
What this means is that you forecast out month by month, line by line, your profit and loss account, cash flow forecast and balance sheet to make sure everything is accounted for.
Then, really importantly, monitor this monthly against actual results. That way, if something does go awry, you can take action before it’s too late.
 

Comments

We welcome your thoughts and opinions. Please keep it clean and friendly!