Friday, September 17, 2010

Business Cash flow diagnosis is a MUST...

Have you ever really thought about giving your business a wellness checkup? It is a common practice by most of us to spend time and money investing in our own personal health. We all have a desire to live long healthy lives, and why should our businesses be any different? Our businesses need regular checkups to stay in shape and sustain profits well into the future.

Cash Flow is the lifeblood of your business. Generally speaking, business owners don't divulge a lot of information about their cash flow, unless, of course, your business is seeing record growth. A positive cash flow is always fun and exciting to talk about but what about those lurking and unfriendly challenges like "past due" accounts receivables. The words, "past due" or "debt" are unfriendly and full of fear. These are symptoms which we all hope will just go away or resolve themselves easily.

In order to take the right path to cash flow wellness you must first take a financial snapshot of your business, kind of like getting an x-ray. It is important for business owners to have a complete understanding of their income, profits, expenses, debt and liabilities. In most cases, the health of your cash flow depends on the health of your customers financial snapshot. It is not easy to really know how your customer's financials look or to be certain of your customer's ability to pay you on time.

In today's turbulent and unknown economic climate it is possible that some of your customers have decided to pay you sometime in the future or possibly not pay you at all. This means you have to take on the role of Chief Collection Officer (the bad guy) and figure out a way to collect on your lost profits. The common procedures applied by most businesses are to employ an in-house strategy to get the cash healthy or reduce some of your pain. These in-house strategies may work for some of your customers but not the difficult cases and every in-house procedure you apply adds to your operation expense.

It is a good practice to provide your customers with payment terms, if you don't your competitor will! It is also a good practice to protect your payment terms, protection ensures strength of your cash flow and early collection results. Aging receivables (60 days or older), or past due customer payments, are silent invasions of your cash flow health. These are the surprises that might destroy your business. Bramma, www.bramma.in has studied the value of past due receivables and the results are not a good diagnosis. In fact, your profits that have aged to six months past due are only worth 30% of their original value.

Early profit recovery is the cure! Don't let your customer decide when it is ok to pay you for your services or products, you decide.

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