Cash is King
Whether we in Australia go into a technical recession or not is somewhat irrelevant. There is no doubt there has been a significant slowdown in our economy. This is likely to continue for some time into 2009. So what does this mean to business. There is a couple of important consequences however here I will only cover one. ( will expand on the other consequence in a future blog post).
Cash is king.
A business must pay particular attention to cashflow when the economy turns. There will be greater pressure from clients who delay their payment a little more than normal. Also creditors may be on the back of small / medium business to ensure that they collect their money earlier than usual.
So this is a time for business to review there credit terms, look at their systems to ensure prompt collection of debtors and review any options with respect to creditors. It is critical to understand in detail the working capital requirements of the business and be measuring this regularly. Working capital shortage can cruel a profitable business.
What is your working capital cycle? How long does it take from the moment work is in the door, stock on the floor until you have the cash from your clients? Are there any ways to reduce this timeframe?
Remember – measure what matters – cash is king.
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