Maintaining a Healthy Cash Flow
Cash flow management is an essential element in business performance. Profit shows the balance after all expenses are deducted from revenues, whereas cash flow shows cash moving in and out of your business on a daily basis. Maintaining positive cash flow can lead to better decision-making, helps explain your expenditures, and supports business relationships.
Global market conditions, logistical concerns and manpower are examples of factors that can directly impact cash flow. At McNabb Lucuk LLP we’ve seen firsthand the challenges businesses face when cash flow dips into the negative. We’ve compiled our top tips for assessing and addressing periods of reduced cash liquidity below.
Forecast Your Cash
Understand where and when your cash is flowing to predict your cash position. Short and long-term forecasts can demonstrate the business’s capacity for taking on new debt obligations.
Consider Different Scenarios
If a single customer is late, does that impact your ability to submit a payment? Regularly review your cash flow statement and plan for “what if” scenarios.
Plan For Challenges
Plan for the unfortunate event that you can not meet a debt obligation. Which suppliers or financial partners are more likely to be more lenient or offer other options? Disclose if you are unable to make a payment and seek out solutions as early as possible.
Communicate With Stakeholders
Payment terms, timelines and discounts with suppliers and customers can directly impact your cash flow. Consider if the timeline of receipts and payments is sufficient to maintain a healthy cash flow. Open communication with stakeholders can create flexibility should an issue arise.
Keep Your Options Open
Speak with your financial advisor or lending institution to understand the options available to help manage a period of low or negative cash flow. Business development grants and lines of credit are a few options that may be available.
Submit Returns
The Canada Revenue Agency may issue a cash refund if your business operated at a loss. Gain access to this cash and avoid late penalties by filing your business return and submitting GST/HST remittances on time.
Apply For Credits & Rebates
Talk with your accountant to determine if your business qualifies for any refundable Government tax credits or rebates. Some refunds can put significant cash back into your business at tax time.
Cash flow is used to pay creditors, reinvest, return money to shareholders and build a healthy emergency fund for your business. If you don’t understand your cash flow, or if it’s causing concerns, contact us at McNabb Lucuk LLP for a personalized assessment and recommendations.