Guess what’s a very important ratio to follow in your everyday business? It’s not so much a ratio, but a number. It is equally important however and ensures you will not run out of funds to manage your business.
It’s your planned net cash flow. Obviously it should be positive, right? Well, if it is negative, there’s also the possibility it will turn black once you get a considerable receivable collected. Continue reading
Negative working capital is a mathematical result when comparing current assets with current liabilities and the latter exceeds the first in number. That is you’ve got more liabilities than you’ve got assets to cover those liabilities in the next coming 12 months.
When thinking about it, negative is never a good thing. At least that’s how you’d normally go about that. However, there are situations when negative working capital isn’t necessarily bad: Continue reading
Yes, you who has signed a longer term service agreements, you need to consider how you manage your cash flows before you sign off the agreement.
It should be obvious without saying, but as it happens, it’s not done often enough and not with careful enough consideration. Just to give an example: Continue reading
You provide a service over a longer period of time and as it is, you’ve set out a payment schedule in your agreement. Now, in your accounting you use the completion method for determining receivables, sales and payables. We’ve talked about completion method and accounting that’s related to it separately, but what I want to focus on now is the payment schedule you agree on and the actual cash need you may have. Continue reading
As the main resource you generate with your business, is money, you want to make sure everything is in order when it comes to having an overview and managing your money. There are a couple of real life best practices I for one have in use for my own personal finances and have seen being used in other businesses as well.
First things first – create at least two separate accounts. One should remain the account you pay your invoices from and the other one is to be used by your customers (basically the account your cash inflows go to). At the end of the month (or week, which ever suits the best) you just transfer all those inflows to your other account you make payments from. This way you have a clear overview and simple structure as to from which account the payments have been done and where the money comes to.
Ever since you’re taking yourself an accountant or you’re outsourcing accountancy alongside with bank payments, you have to ensure that the cash outflow is authorized. All payments done should be authorized obviously by none other than you, the manager or owner of the company.
Generally speaking, already in medium sized companies, if there’s an accountant (or team of accountants for that matter) there should always be someone else at least reviewing the payments. There are two main reasons for it – to prevent any mistakes and prevent any false payments.
We are all humans and as such, we tend to make mistakes – either with numbers, receiving party etc. The more there are payments, the easier those mistakes are bound to happen. We all do them and there’s nothing wrong in doing them. I have heard from countless accountants that they either really want someone authorizing the payments or if already implemented, they hugely appreciate it.