Business cashflow and the Summer holidays - Part 2
14 June 2016
This is part 2 of "Business cashflow and the Summer holidays"
While we’re on the subject of the Balance Sheet, it goes without saying that this report is fundamental to understanding a business’ finances. Unfortunately, I have found that it is often overlooked by many owners and managers of small businesses, who instead focus on their businesses’ Profit & Loss Statements. It’s not hard to see why; sales turnover, expenses, profits, losses and cash (the business’ financial performance) can easily dominate business managers’ thinking.
However, the financial position presented in the Balance Sheet contains essential information about a business’ assets, liabilities and owner’s equity that can’t be ignored. Sadly, it seems that more than a few small business proprietors lack the necessary knowledge to understand what the Balance Sheet is trying to tell them, and that’s a shame.
Anyway, that’s another topic to be explored in a separate blog post.
An extended holiday shutdown can be a stressful time for small-business business owners and managers, but it needn’t be. With good planning and foresight, measures can be put in place to reduce or eliminate the stress.
In my commercial banking days, the businesses which successfully managed their cashflows during seasonal holiday shutdowns were those that:
- promptly sent invoices to debtors, well in advance of their businesses closing for the duration;
- made advance arrangements with their bank(s), to ensure routine payments continued to be honoured during the closure period;
- actively followed up their invoiced debtors at the earliest opportunity;
and, where possible, made special arrangements with key creditors to defer or progressively pay major bills before inward cash slowed down.
By implementing at least some of these ideas, hopefully more small business proprietors can have a more enjoyable extended holiday season.