Managing cash flow in 2023...
Unless you've been sitting under a rock, you'll realise financial stress is not only the domain of household mortgage holders as the challenges of 2023 cause cash flow angst for many SME business owners too. Whilst company bank accounts were boosted by government support during the COVID years, most excess cash has now been eroded. At the same time, many revenue lines are starting to trend downwards and many businesses have also accumulated significant ATO debts from unpaid BAS/PAYG, as the likelihood of a recession approaches.
Why is cash management so important?
A business' ability to navigate through challenges like these is largely dependent upon its ability to find the cash to do so, and managing cash has never been more important. Directors must ensure their business is a ‘going concern’ and can meet financial obligations when they fall due. Cash also provides options during times of financial stress. Whereas when cash runs out, a business may have no options, as we have seen frequently in the construction industry in recent times.
Why looking forward matters most when managing cash...
Irrespective of whether you choose to look at cash flow on a daily, weekly or monthly basis, a forward cash model is one of the most important tools you can use. Forward cash models highlight the timing and extent of potential cash flow shortages. Armed with knowledge of both these variables helps savvy business managers make sound decisions when navigating a business in challenging times.
Importantly, a good forward cash model also enables potential strategies or plans to be analyses under a variety of differing assumptions, which is a huge shortfall in the basic cash flow forecasting information available from accounting software packages such as Xero, Myob, or QuickBooks. Not to mention, these platforms also can’t help you with the practical side of managing cash, such as negotiating with the ATO, suppliers, banks or unions.
If you're concerned about cash flow, or even just a little uncertain, don't hesitate to reach out for a confidential, no strings chat with one of HD&U’s cash flow experts.