Is cash king in your business?

Hamish Mexted Managing Cash

Have you ever thought about your cashflow cycle and how long  it takes you to be paid for your stock from beginning to end?

Take a company who buys its stock on 1 April, paying for it 20 days later on 20 April.  The stock is then in store on 30 April and sold on 31 May.  With the economic situation as it is, the debtor becomes overdue and is finally recovered on 31 July.

The time between paying for the stock and receiving payment from your customer is 102 days.  This is made up of 10 days in transit, 31 days in sales and 61 days in debtors.

If you’re able to lower any of these time frames your cashflow cycle time will reduce, improving your cashflow position.  A simple idea, but very powerful.

This applies equally for service orientated businesses.  Instead of thinking about when you buy your stock, think about when you pay your staff.

One final point to note is that your cashflow is different to your net profit – a profitable company can have poor cashflow. Profitability is important, but as the saying goes, cash is king.

What changes have you made to your business to improve your cashflow position?