Cashflow Management – A Service That Accountants Could Provide

Welcome to Accountants Minute.

Having too much money owing by debtors, high levels of stock on hand and work in progress or high levels of capital expenditure, can all contribute to significant cashflow management problems.

All types of businesses can encounter real survival problems, even when they are trading profitably, if they have too much money invested in debtors, stock, work in progress or large sums of capital expenditure.

An accountant can assist small/medium enterprises in the control of their cashflow by:

• Calculating debtors’ days outstanding every time a set of financial accounts are prepared and if debtors’ days outstanding are over 30 days, giving your client advice on strategies to reduce debtors’ days outstanding, thus contributing to an improvement in cashflow.
• Regular review of investment in stock by calculating the stock turn and the number of stock days represented by the investment in stock. How does the investment in stock compare to the business’ budget?
• Work in Progress – is there appropriate control on the amount of investment? What is the number of days of work in progress at the end of the month?  How does this compare to budget?  How does it compare when benchmarked against other similar businesses?  Is work in progress monitored each month to ensure that all jobs are being invoiced promptly?
• Lack of cost control is another contributing factor to poor cashflow management. Accountants can assist in the preparation of a detailed review of cost of expenses and materials budget, review of wastage, analysis of staff manning, ensuring that any damaged stock received from suppliers/wholesalers is returned and that a credit is applied for and obtained.
• Is capital expenditure being funded out of cashflow instead of from a special borrowing or capital raising?
• Is creditors’ days outstanding being measured each month?  Are creditors being paid quicker than what is necessary, according to the business’ agreement with individual creditors?
• Are all key expenses being paid in full upfront – when the business could have elected to pay monthly? 
• Paying expenses like insurance, equipment hire or software, on a monthly basis can assist in reducing pressure on cashflow.
• Cashflow management is one of the crucial components of business survival.