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Why cash is king, ignore it at your peril

One of the most important lessons small business owners learn, sometimes painfully, is that cash is king. It doesn’t matter how much money your business is owed by customers or how profitable it is, if you don’t have enough cash in the bank to pay your creditors your business is in danger.

Perhaps that was why I was shocked to see new research which claimed that a third of small business owners have experienced financial difficulties, yet just 7% look at the books more than once a month and 23% once a quarter. It was even more concerning to learn that 17% don’t have any formal reviews of their business finances at all.

Never mind reviewing your books monthly, when your commercial cash balance is running low you should be checking the money position daily to make sure you know what is coming in and out of your business.

This is something I have personal experience with.

In a past life I helped rescue an ailing business that was haemorrhaging cash and needed to be turned around. At the most challenging time we had £15,000 in the bank, but a monthly £18,000 payroll to cover. It was only by being on top of the finances daily that we were able to pull through.

This meant meeting with the bookkeeper daily to get an update on cash levels.

We would prioritise paying our suppliers and pushing back those less urgent to pay those we could, while at the same time discussing every business that owed us money so that I knew who we needed to get to pay us.

Having all this information to hand meant I could do a deal with the bank manager so that he would extend the £3,000 finance to cover the payroll shortfall, on the provision that I would bring in £10,000 of outstanding payments by the end of the month. We pulled through, but only by keeping on top of our cash levels.

Of course, this is an extreme example of how keeping on top of cash levels can help save a business. Would you know your position if you suddenly didn’t have enough money to pay the staff?

If you are unaware of your cash position, now is the time to start getting into good financial habits.

Rather than leaving your paperwork till the end of the month, get into the routine of doing it weekly or even daily in tough times.

Of course, with all the other demands upon your business this may not always be achievable. Ozlop helps people who have limited time for business admin by helping them spot and address small troubles before they turn into big problems. If you need help getting on top of your books, get in touch to find out how we can help you sort out your finances quickly.

David Vine – small business specialist and Managing Director at Ozlop.

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