6 Stages of Cash ManagementPosted by plumbingpros in General, on September 23, 2016
“An Entrepreneur,” Robert Kiyosaki describes in his book ‘Retire Young, Retire Rich’, is “someone who sees an opportunity, puts together a team, and builds a business that profits from the opportunity.”
I must assure you that if you don’t have systems in place in your business where things are independent of you then you are not running a business – you are a self employed contractor.
Now it might seem a tad harsh but it is very true and I can guarantee that lack of systematization is going to catch up with you sooner than later.
When ‘You’ work in your business you are still being employed by ‘a’ business whereas when ‘Systems’ work- then you have truly graduated to being a ‘Entrepreneur.
Cash management system is fuel to the ‘asset vehicle’ you want to drive and mis-management of it would definitely cost you in terms of lost sales, late payments, bank charges, disruption, ineffective business growth, etc, etc.
I have been through many cash mis-management to say that most businesses have scope of improving 20-50% of cash management in terms of value & timing. So, if you are already running an optimum cash management system- I bet there is some small adjustment you can still make that would generate instant cash for you, Now!
Are you aware of fundamentally 6 stages of cash management in your business? On a scale of 1-10, how optimised these systems are, 1 being very weak to 10 being very strong?
1. Cash Generation – i.e. Sales or other cash generating activities. There we want to benchmark the profitability of the project rather than the top-line numbers.
2. Cash Accountancy – This means ascertaining sales – exchange of services with cash- involving Invoicing and parking of debt owed.
3. Cash Expenditure: This is the working capital you use to finance the project/business operations.
4. Cash Receipts- This is where we reduce the debt owed to us, again more we systemise this activity less time consuming it would be.
5. Managing Debtors- This is where managing not only debt i.e. £s coming in but also the quality as well. And as again I would be showing you in the ‘Cashflow Now!’ system- the more we have benchmarked this activity – more money we can generate in our business.
6. Cash Reinvestment /Retention- This is where most businesses lack a plan and lack of plan would mean lack of effective reinvestment/retention.
As you can make out any weakness in any of the 6 stages would have a spiralling down effect on the business.