Cashflow – Where are your sofas?

Many years ago in my student days I had holiday jobs delivering furniture for a well known retailer.

 

It was good exercise and the money (for a student) wasn’t bad. Customers seldom tipped but in those days we could – at no charge – take their old sofas and dispose of them. And that was where the real benefit lay. As a matter of routine we would cut open the bottom of the sofa and remove the money that was hidden there. There was always money; sometimes pennies and sometimes pounds. (A pint of beer cost 40p back then).

 

And so it is in business – pretty much every business has a few pounds hidden down the back of their metophorical sofa. In some cases they are hiding the difference between success and failure.

 

A regular rummage down the back of sofas should be part of your routine – followed by sewing up the holes that the money slips down. First, you need to think where your sofas might be.

 

Debtors: The primary and often the largest sofa is your debtor book. Late payments, errant payers, or too generous customer terms. Getting control of your debtor book must take top priority.

 

Creditors: whilst focussing on debtors, why not take a look at your creditor terms – actual & implied?

 

Recurring payments: Looking through bank statements can be quite revealing. It isn’t uncommon for small, recurring sums to go from the account on a long finished contract or sometimes for absolutely no explicable reason.

 

Contract reviews: Similar to recurring payments, it pays to have a periodic review of all ongoing contracts to establish whether they are still valid, or still the best option. Also take a close look at terminations. Don’t fall into the trap of believing a contract will automatically end when you think it will.

 

Stocks: There is a common belief that it is good to hold as much stock as possible. Stock might be an asset on your balance sheet, but all the time it is on your shelves it is a costly, depreciating liability. Just in time might be a bit risky for many small businesses – but you should aim to get as close as possible.

 

Cash at bank: Odd though it sounds, a too-healthy bank balance can cause huge complacency and lead to inefficiency. Not only can your cash work harder than sitting in a current account, keeping it lean will keep you focussed on efficiency.

 

Each business is different but every business has cash sofas – find yours and have a rummage!