Financial precepts for a small business.

For any small business as we’ve seen before cash is king. Directors shouldn’t treat the business’s money as there own, rather they should treat it as the most rare and precious commodity that has been on the endangered list for the past ten years.

It is often written that “far more small companies go out of business through running out of cash that by being inherently unprofitable” *

For large corporation, Directors tend to have a focus on large scale debt re balancing with bond market sales, while in a small business the nearest you get to financial help is paying over the odds for bank credit facilities, which in all probability will be used up with the first large sale of any moderately successful product.

So where does one look for the cash?

  • Reduced stock pricing through careful management of payments to retain credit lines
  • Reduce overheads in producing the product.
  • Carefully negotiate the price of goods to customers and receive in writing the order
  • Accurately produce the product providing information for reordering
  • Ship the product ahead of time reducing costs of rushed shipping
  • Accurately invoice for all items being sold.
  • Check the cost of production against the invoiced price.
  • In lean times avoid all use of credit facilities unless absolutely product dependent

The key tools for avoiding problems are the same for all business large or small.

  • Communication, to all levels of the company
  • Tracking of creditors list, paying key suppliers or communicating with them.
  • Tracking the debtors list, chasing on late payers. (at a minimum weekly)
  • Reducing stock inventory, running a just in time order system.
  • Check product shipped to products invoiced.
  • Reduce time to invoice to a minimum, (as if it needs saying, Invoice daily)

If you’re running a small business how are you spending your time to generate the oxygen of a small business cash?

*Accounts Demystified – Anthony Rice.