The article gives an insight on how important cash is for business and how the same is tied up in your business

1. By Abdul Shukkoor
Imagine a day in your office receiving frequent calls from your suppliers for payment
follow-up and having no balance in your bank account to meet the commitments...
Imagine the day when your employees face turn red and ask for their pay cheques
and you left with absolutely nothing in your valet to pay them...
Yes, indeed that’s the lengthiest day you feel you have ever had in your life.
So what exactly the cash flow means for your business. Everyone knows working
capital or the cash is blood in your business. Without which no one can sustain, so as
the business do.
Without doubt we can say it’s critical to have a healthy cash flow position.
Most companies downsize operation not because they are not making profits. Yes
they are profitable. They see the digits in green in their P&L. They see comparatively
good figures in the revenue side. Yet they fail to sustain for one reason - the cash flow
problem.
How Cash Flow Can Make or
Break Your Business

2. So where does all these cash goes when the business is in profit? Does that mean the
profit we see in financial statement is not true? Or isn’t profit = cash? The questions
goes on…
Profit is not always cash. When your business is in profit it mean that you have an
advantage over your expenses.
Under the accrual basis of accounting, profit is the amount of revenues earned
minus the amount of expenses incurred. Note that revenues are not receipts, and
expenses are not payments.
profit
So where exactly cash hides when we say our revenues exceeds expenses? In order
to identify this we do the cash flow analysis & the working capital analysis. It is highly
important for every business to stress on cash flow & the working capital more than
anything. For a robust cash flow you should analyse all aspects were cash is
involved, not limited to the payments & expenses.
Yes, you read it correct. Revenues are not receipts and expenses are not payments.
We follow the accrual basis of accounting. Accrual basis is a method of recording
accounting transactions for revenue when earned and expenses when incurred. ...
A key advantage of the accrual basis is that it matches revenues with related
expenses, so that the complete impact of a business transaction can be seen within
a single reporting. This way we will be able to see whether we have an advantage/
disadvantage over the expenses.

3. It scatters almost everywhere in your business. For e.g. some lies on your credit
controller desk, some with invoicing staff, some in your warehouse & a portion links to
your expenses. Now you May be wondering why expenses came last. It is the false
impression, of most companies, that cash flow issues happen due to overspending.
When business faces cash flow issues, they put magnifier on the expenses and start
implementing cost control efforts. This is not always true. Your cash get blocked due
to process delays, excessive stocking, and due to poor management of receivables..
For instance, when the invoicing staff delays the invoicing by a day, it means your
cash is blocked for many days. Likewise all the processes linked to cash makes a
difference. So it’s really imperative to have a fool-proof process in place. Instead of
having one single magnifier focusing on expenses, we should have multiple
magnifiers focusing on processes, inventory and debt management.
There is a lot of cash lies in your inventory too, in the bins, on the rack, in transit and
may be spread across different warehouse locations. Businesses should always work
on ideal stock situations. Never the excess and never the deficit as both scenarios
are fatal in the business.
t, the debtors, which shares the majority of cash cake. We
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Last but not the leas
should have a thorough analysis on the debtors. In simple words, it is our money in
someone else’s pocket. It is the pay cheque and it is the money, our suppliers are
behind. So before things go wrong… take it in control. You will have a peaceful and
pleasant day!
Business owners should reconsider incentive schemes based on revenue
generation, instead they should base the incentive on receipt. And thus those who
works to enrich your cash flow gets the share. They are indeed the heart of every
business which pumps the blood (the cash).
Conclusion: