Cash Management Before the Cash Runs Out – By Michael Turner

We’re now past Halloween, which can only mean one thing. Christmas is coming!

For many, Christmas is a reminder to take a well-deserved break. We’ve discussed how breaks are important here. Often, however, Christmas puts a strain on cashflow as well as stress on business owners.

If you’re feeling a little overwhelmed by your cash situation here’s a few ways you can help.

Start Early

Cash management is all about solving the issue before it becomes one, or at least minimising the damage should anything arise. Therefore, if you’re feeling the pinch now, you should be taking steps in November to avoid the crunch in January.

Understand Why

In business, like everything it is important to understand why you’re running out of cash. While it may be easy to say ‘because its Christmas’. That doesn’t uncover the real why.

Is it that all your sales staff take 4 weeks annual paid leave so there are no new sales contracts in the pipe line but the business is still paying all the normal fixed costs. It could however be that your customers cannot pay you until they also make sales It could also be that your customers are at the beach, or they cannot pay you until they also make sales. Perhaps your tenant moved out of your rental property and you can’t get a new tenant until the property is redecorated and advertised in mid-January.

Contact people who can help

Too often, it’s the accountant and bank manager who hear about the cash flow issue when the business is already in complete crisis. By that stage the choices change from choosing the best option to choosing the least worst option.  Anticipating the cash shortage problem and taking proactive advice sooner often avoids the problem entirely or at least reduces the damage.

Put cash in

If you’re sitting on cash that’s earning a few percent in a term deposit (or worse an ordinary savings account). You’d generally be much better off using that cash in the business rather than the business having to use an overdraft facility which often charges much higher rates. However, depending on your ownership structure, you may want to be repaid this amount plus interest at a later date, when the business has more cash available.

Get an overdraft facility ready

If you don’t have a mound of cash sitting around, an overdraft facility may be best your option. Your bank manager will likely need a cashflow forecast to show that this is a temporary issue (rather than a more permanent one). The forecast will also be able to quantify how much is likely to be needed, for how long and when the worse of the cashflow issue is over. If the cash shortage is a permanent issue then other funding and/or operational changes may be required.  This may be an opportunity in disguise and a catalyst to adopt a smarter business model.

Use Tax Pooling

Most businesses will have a provisional tax payment due 15 January which is possibly the worst time to find a large chunk of cash on short notice. However, tax pooling can delay this installment payment for almost 12 more months.   If you use tax pooling you also avoid all IRD penalties and only get charged ~6% interest.

Look at invoice due dates

When cash is tight, a few days extra can make all the difference. In which case, if your suppliers have given you until the 31st of the month to pay, there’s no point paying on the 20th. Might as well use the extra days you were given. However, care should always be taken when exceeding supplier credit terms as this can mean the supplier ceases to supply your goods on credit.

Chase the outstanding debts

While it is still November, it is still worth chasing your outstanding debtors to ensure you get the most cash in before everyone breaks for Christmas. November is also a good time to scrutinise long overdue debtors and perhaps refer these to a debt collection agency. You might not get the cash before Christmas but it’ll come through earlier than if you wait until mid-January before you refer them on.

Make Good Habits

While cashflow management can help you avoid a crisis, the best results are achieved by making cashflow management an ongoing part of your daily business rather than a once off to get out of a squeeze.

Good cash management should help avoid crisis situations and reduce the resulting stress.  Best practice cashflow improvement involves reviewing operational processes and implementing changes to improve the business’ cash management.

Q2 is running cashflow management workshops in early 2018. If you’re feeling the pre-Christmas pinch give Q2 a call on 09 222 4448 or

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