How much cash does your business need to survive?

Alex Silverwood Asset Protection, Increasing Profit, Managing Cash

Knowing how much cash your business needs to survive becomes even more important in the busiest times of the year. As we draw closer to Christmas (and with tax payments due in January), here are the 5 key ways to keep on top of your working capital.


  1. Be prepared

‘Cutting it fine’ is definitely not an approach you want to take when it comes to your working capital. Always include an allowance for unexpected events, such as surprise expenses, unpaid accounts or cancelled orders. A good way to manage this is to include ‘safeguards’. For example, allowing for an extra month’s worth of rent and overheads. Or factoring in an allowance for doubtful accounts.


  1. Be wary of “the construction boom effect”

Every business wants growth, but you need to ensure you have the cushion to support it. When demand for your product or service rapidly increases, be wary of increasing your overheads and liabilities without reassessing your working capital. Yes, your business may suddenly be highly profitable, but if it’s under-capitalised, things can go very wrong, very fast.


Keep an eye on your expenses and projected income. Realistically, you should be assessing your working capital on a regular basis. However, if you’re going through a period of growth and you plan on increasing costs (for example, you’re going to hire new staff members) it is absolutely critical.


  1. Less really can be more

Having an overstocked inventory can be an absolute nightmare if you can’t get rid of the excess. Not only can it take up valuable shelving space and tie up capital, it will take time and resources to liquidate and get rid of. While you don’t want to be seriously understocked, err on the side of caution and maintain a conservative approach to stock volumes (without running the risk of running out of stock).


  1. Analyse the books from different perspectives

If you have the resources to do so, review your working capital from different angles. You might have an operational view of your business, whereas your Stock Manager might provide a different perspective. If you don’t have a dedicated person to these areas, consider assigning employees to their “own” aspects of the business. Each assigned staff member can be responsible for suggesting, measuring and reporting on adjustments. You might find invaluable insights for your resource management you would not have noticed otherwise.


  1. Regularly review and plan ahead

I mentioned this above (in 2) and it’s so important that I’m covering it again. With Christmas just around the corner (I swear it creeps up faster each year…) every business needs a robust plan of action for the busy holiday period. It’s easy to create a plan of action and never come back to it again. Of course, you will get caught up in the daily operations, but it is important to make reflection part of your routine as well. Remember: It’s easier to spend a few minutes each week assessing your sales versus your estimated projections than backtracking once you stray too far off target.


When you meet with a business mentor or coach, you’ll be able to discuss everything that might impact your working capital and work with them to decide what is best for your business model.