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Cashflow is king

Natasha Muktarsingh, Mail on Sunday
13 October 2002

KEEPING tabs on financial indicators is vital to running a business - but many bosses are ignoring these basic checks. Without knowing the cash position of a company, it is impossible to make sound business decisions. But research by online analysis service Cashflow Wizard shows that nearly half of small and medium firms assess future cash requirements only four times a year - or even fewer.

More worrying, at least a third look at cashflow only twice a year or less, even though half of all owner-managers say regular cashflow analysis is either the first or second most important factor in achieving business success.

Geoff Bristow, chief executive of Cashflow Wizard, insists: 'Someone running a small firm ought to know its cash position off the top of their head. They should also be checking the figures at least once a month.'

But this is not just a matter of checking what is in the bank. Bristow says firms should regularly review outgoings, stock and what it is worth, and how much the firm is owed.

'In a big company, it might take a week to build a spreadsheet to look at these factors, so the length of time small firms need does put people off - but checking finances regularly can ward off failure,' he says.

Neil Spellings, 29, has made a point of looking at his firm's cash position every month since he set up the company seven years ago.

Spellings Computer Services, a web services company in Purley, Surrey, has three staff and a turnover of about £100,000.

Neil says: 'I have kept an eye on the cash right from the start. It is essential to the business, and although we have accountants I keep track of the books myself.

'If you don't keep an eye on things you can lose track and easily get into difficulties - and you might not realise you're in trouble until it's too late to do anything about it.'

Keeping track of the cash has also helped Neil develop the business in other ways. He knows how much the company spends on various items such as advertising, and how much money the business makes as a result.

He says: 'By keeping an eye on the finances, you can evaluate how well your strategy is working. I check the figures at least once a month and I haven't had a debt in seven years - there's always cash in the bank.'

Bristow is convinced that thorough knowledge of a business's resources is essential for its development.

'If your business is showing high sales growth, keep an eye on the bank balance or you could run out of cash and go bust,' he says.

'If you keep track of cash, you will be able to afford other things for the business, such as extra equipment.

'It's also a lot less stressful running a company if you know the whole financial story.'