I’ve decided to create quick posts which will be added very frequently, the aim being one per weekday. These are all under the category of business ideas.
Although these ideas seem quick, they are nonetheless of vital importance to your business success. With that said, lets get started on today’s post.
Don’t go bust – Cash and accounts payable!
The above is not a particularly snappy title, and if you want your business to go bust, then just ignore it! Gulp, I know this is more than a bit sarcastic, but you’d be surprised at how many people, I mean business owners and entrepreneurs ignore this point.
There is only one thing which causes all businesses to go bust and that one thing is cash or a lack of.
If you have enough cash, there normally ways and means in which you will survive, even big drops in the overall economy.
If cash is so important, why is it that so many small and even medium-sized businesses are bad at managing their cash?
Perhaps it’s an old, ingrained idea about not being in debt or maybe it’s a habit to pay your bills as soon as they turn up.
It could be the other way round and you haven’t got a process for collecting payments due!
Either way, your accountants, and the system which makes up your profit and loss and balance sheet, will be looking at your creditors and debtors and wondering what is going on because you have no cash?
The accounting system looks at the dates of purchases and sales and it’s these dates which have a degree of importance.
Just imagine you have invoiced someone for £300,000 for a project or machine of some sort. If that date is for example near the end of your accounting year it will feature on your profit and loss as revenue. It will therefore be included in the calculations for corporation tax.
If you haven’t had payment IE cash in your bank account, then you may end up with what is termed a cash flow problem.
The reverse is also true, it’s possible you have already been paying out for this project or machine, in salaries etc and your cash position becomes even more critical.
So, please, please, please ensure you have a process in place for accounts payable. Don’t pay your bills in cash or too quickly, pay them when they are due. Or you may find you can’t pay wages, PAYE, VAT etc as you don’t have the cash.
On a personal note, I’m of the generation who never got into debt and would never dream of buying anything I couldn’t afford and would save up.
But businesses are different, the accounting system is designed a certain way, so don’t fall into the trap of seeing your business the same as you the person when it comes to managing your accounts payable.
Cash really is king! And ensure your accounts payable system is working as sweetly as possible.
Cheers for now.