Too Big To Fail – Only When Cash is King
Australia the Luck Country. Well yes at the moment. A great factor of luck is not being part of Europe. Lingering affects of the Global Financial Crisis and inept Cash management skills set several countries down the bankruptcy spiral . 5 European countries sit like dominos on the brink of economic collapse. Germany , Britain and France are owed money by Greece, Italy, Spain, Portugal and Ireland who lack economic capacity to ever repay their debts.
Not good business. A Country must be disciplined in financial management just like a business. Regardless how good your products or homeland may be , excessive debt and poor terms of trade – Cash Flow will bankrupt a business and a country even in the 21st Century . When a well branded company fails the usual question is Wow how did that happen – they have great stores , great products , they were too big to fail. Well guess what, they ran short of cash and business was unable to conduct day to day operations.
Business owners must focus and monitor cash-flow . This is not the responsibility of your accountant. It is you the business owner who requires the accurate data on a weekly or monthly basis to ensure planning , strategies, targets and spending are relevant and achievable. Data that should be understood from the balance sheet, profit and loss and cash-flow statements.
Just sell more. Increasing sales or discounting to make sales is not the obvious solution. As with sales there is usually increased expenses and discounting is a disease that kills business. Cash-flow is about making sure business has enough cash at hand to pay all expenses when they need to be paid.
Print more Money. Well countries do that , resulting in an overall devaluation of their wealth , increased debt and less ability to buy goods. Business can run out the overdraft or max up the credit card to plug gaps however this adds to the business expenses.
But we make good profit. A business that has good profit can suffer from cash-flow difficulties. It is important to manage finances to have money when required to pay expenses not at the end of the year. Good profitable well branded business do fail.
Money in the Till. Be disciplined. It can be very tempting to pull cash from the till. Cash drawing is an expense . When business income is consumed it is always an expense regardless and sloppy procedures will cause big cash flow holes. Free business advice call Melanie at Redland City Business Grow 1800 282 208 (a Redland City Council initiative )
By Rod Richards
Posted by Rod Richards on 20 Jun 2010