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This podcast selection is taken from a series of Business Hub radio shows broadcast on Star FM between February 2011 and October 2014 with advice from basic book-keeping through to crowd funding, directors loans, cashflow and a whole lot more!

There's something for everyone so do feel free to download and share - it might just be the golden nugget of information you need for your business to succeed!Listen at Star 107.9 FM

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Business Trouble - your choices

More on Cash Flow

The Business Hub Show - 2 October 2011

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In the past weeks and months I have often spoken about cash and managing cash flow. Indeed in considering matters of finance or money in your business, nothing is more important than cash. Cash is of course king.

Time and time again we find that there is a huge confusion between profit and cash, and this can lead not only to problems in a business but also incorrect decisions being made.

I have recently had conversations with a couple of clients who were in the very nice position of producing good profits and then becoming concerned about the levels of corporation tax that they may have to pay. It was therefore sensible that we should discuss how perhaps they could manage that tax charge, and clearly looking at their profits is one way of doing this. On each occasion the first thing that was suggested by the clients, good and experienced business owners, was that they should perhaps bring forward a planned capital purchase!

This showed immediately that they were confusing profit and cash. Yes, buying a new machine would use up cash, but it would not of course reduce profits (well not immediately at any rate!). A purchase such as this is for an asset and as such will be added to other assets on your Balance Sheet and not be charged as a cost or overhead in your Profit and Loss Account. Another example is stock. Stock is of course unsold product. It will be shown as a cost in your Profit and Loss Account when you make the sale, in order to match the income and cost to show your margin. Until then it is an asset, on your balance sheet, reducing cash when you pay for it but not impacting your profits.

Another issue in understanding cash is credit. Both the credit you give to customers and the credit you enjoy from your suppliers. It is a good practice to monitor these and to calculate the average credit you are offering against the average credit you are receiving. It is worthwhile doing all you can to ensure you give less credit than you get. For instance if you offer your customers 30 days credit, but receive from your suppliers 60 days credit then this will boost your cashflow, and in effect the net position will mean that your suppliers are helping improve the cashflow in your business.

Now, that is based upon the terms agreed. The next step is to monitor the actual terms. Invariably these are different, your customers often will not pay you exactly to terms and one or two may drag it out considerably longer. If this is the case then in my example before, your agreed 30 days could rapidly become more than the 60 days you are getting from your suppliers and instead of your cash being positive it is negative!! It is situations like this that can create cash flow difficulties in a business very quickly.

A good way to measure the credit terms is to calculate the number of days that they represent. For your debtors, the amount which your customers owe, divide the total amount owed by your average daily sales (including VAT). Do this say each month and monitor the trends. Do the same for your trade creditors (the amount you owe your suppliers), dividing by your average daily purchases including VAT remember to include everything! and calculate the average days outstanding.

Managing your cash flow is not just about the daily checking, review and forecasting process we have spoken about before, but really understanding the dynamics of how the money is moving in your business.

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