A healthy-looking bank balance does not always mean a business is in a healthy cash position.
The money showing in your account today may already be needed for wages, GST, suppliers or other upcoming expenses. At the same time, there may be significant amounts owed by customers that have not yet been collected.
Good cashflow management starts with accurate, up-to-date bookkeeping and a clear view of what is coming into your business, what is going out, and when.
At ClockworX, one of the first things we look at when reviewing the financial health of a business is whether the owner has this visibility.
Can you answer these five questions about your business today?
1. How much cash will be in the bank in 30 days?
Your current bank balance only tells you where you are today. A cashflow forecast considers the money you expect to receive and the payments you will need to make over the coming weeks.
If you cannot estimate your bank balance 30 days from now, it can be difficult to plan confidently or identify a cash shortage before it becomes urgent.
Accurate bookkeeping gives you the financial information needed to keep your cashflow forecast current and make more informed decisions.
2. Which customers owe you the most money?
Sales do not improve cashflow until the money reaches your bank account.
You should be able to quickly identify your largest outstanding accounts, how long each invoice has been overdue and which customers require immediate follow-up.
The longer an invoice remains unpaid, the harder it can become to collect. Regular debtor management and accounts receivable follow-up can make a significant difference to business cashflow.
3. Which suppliers need to be paid and when – this week, month or quarter?
Paying suppliers on time is important, but so is understanding exactly what is due and when.
An up-to-date list of supplier invoices allows you to prioritise payments, avoid late fees and maintain good relationships. It also means you are less likely to be surprised by a payment that was entered late or overlooked.
Keeping accounts payable accurate and current gives business owners greater control over upcoming cash requirements.
4. Is your GST money already set aside?
The money collected for GST is not available to spend, even if it is sitting in your bank account.
Many businesses choose to keep GST in a separate bank account. Regularly setting aside the estimated GST amount can make upcoming tax obligations easier to manage and reduce the risk of reaching the due date without enough cash available.
Keeping your bookkeeping up to date also helps ensure GST information is accurate and ready when it is time to prepare your return.
5. Can you afford your next planned investment?
Investing in your business can take many forms, from hiring a new team member to purchasing equipment, upgrading technology or making another significant investment to support growth.
The true cost often extends beyond the initial price. A new employee may bring additional costs such as KiwiSaver, holiday pay, ACC levies, equipment and training, while a new asset or technology investment may involve finance costs, subscriptions, implementation, maintenance or ongoing operating expenses.
Before making the commitment, you need to understand whether the business can comfortably absorb both the upfront and ongoing costs, including during quieter periods.
Reliable financial reporting can help you understand the impact of an investment on cashflow and make the decision with greater confidence.
Accurate bookkeeping provides the answers
If you struggled to answer some of these questions, your financial information may simply not be current, accurate or presented in a way that helps you make decisions.
Professional bookkeeping gives business owners clearer visibility over their financial position, including:
- A reliable view of current cashflow and available funds
- Visibility over unpaid customer invoices and accounts receivable
- A clear schedule of upcoming supplier payments
- Confidence that GST and other tax obligations are accounted for
- Better financial information for decisions about hiring, investment and growth
At ClockworX Bookkeeping, we believe good bookkeeping should give business owners more than a record of what has already happened.
Accurate, timely bookkeeping gives you the financial clarity to understand where your business stands today and make informed decisions about what happens next.
If you cannot confidently answer all five questions, a cashflow health check could be a useful place to start. Talk to ClockworX about how better bookkeeping can give you greater visibility and control over your business finances – Contact us today.
