Matley Discuss Cashflow Management Over the Christmas Period

Christmas can be a very stressful time for any business, as we tend to splash out on staff parties and gifts, and there is always the looming expectation that cash will not be flowing in over the holiday period. This can cause a cashflow crisis around this time of the year and into the New Year. Plus the fact that our debtors are experiencing similar cashflow problems and could push out their payments beyond the normal trading cycle.

Cashflow shortfalls can be positive and they can be negative.  When cash is being used to fund growth, this can cause short term cash pain. The capital outlay needed has a short-term impact on the business, and when growth stabilises the cashflow then returns to normal.  Other factors that impact cashflow while growing are the debtors.  and it is important to make sure that a business does not act as a bank to debtors.  A robust collection policy will ensure that debtors are paid in a timely fashion.

If expenditure cannot be reduced, or has been reduced as low as it can, then the balance sheet needs to be looked at.  The relationship between the P&L and the Balance Sheet is that when profit is generated it is transferred (after tax) to the balance sheet to increase assets, reduce liabilities, or to cover drawings . Therefore, understanding where the cash goes becomes important.

We all like to repay debt but at the cost of short term cash it becomes a balancing act.  The final component of the balance sheet is the drawings – how much is the business owner taking to live off.  If this is more than the cash the business generates then the business owner’s lifestyle needs to adjust – as the old saying goes cut your coat to suit your cloth.

Matley are there to assist with your cashflow management, particularly over Christmas and the New Year, and as they say, “As accounting moves away from the traditional number-crunching, we at Matley believe that we can better assist out clients through looking beyond the numbers. We can advise you on the best action to take and the next steps to enable business growth in a setting that suits you – such as monthly, two-monthly or quarterly meetings”, so for more information on accountants Hamilton, Matley Financial Services and small business taxes please visit the website at http://www.matley.co.nz .