The Importance of Cash Flow and Business Planning

The Australian Financial Security Authority (AFSA) recently revealed that business-related personal insolvencies rose across much of Australia, and could continue to rise.

The AFSA personal insolvency statistics for the March quarter of 2017 in comparison to the December quarter of 2016, show increases in many of the capital cities and some regional states.

To ensure you do not become part of these statistics you need to ensure that you are on top of your cash flow and business planning.

Achieve Business Solutions are the accountants Frankston business owners trust. We see one of our key roles is to ensure that our clients are on top of these.

It’s about understanding what the business does, what its key drivers are, and then putting in place KPIs along with a monitoring program to improve the business's performance.

Managing your cash flow properly and paying great attention to it is paramount because ultimately your test as to whether you're insolvent is - can you pay your debts as and when they fall due?”

"Turnover is vanity, profit is sanity but cash is reality"

The biggest single creditor that pursues people to bankruptcy and liquidation is the ATO for unpaid GST, superannuation, or tax.

Businesses with cash flow issues put off their tax office obligations. However, one month turns into two, turns into six months and eventually the numbers get so big you can't jump over it.

So ensure that all those taxes are kept up-to-date. Don’t allow yourself to fall behind.”

The number of business-related personal insolvency debtors in the Greater Melbourne region and the rest of Victoria rose 5.7 per cent and 8.3 per cent respectively.

Further increases are possible given the current situation in the property industry and the “historically low” interest rates.

There is a considerable discussion regarding the property industry, residential in particular, and what's going to happen.

Any downward movement could disaffect small businesses that use properties they own as security for their loans from the bank.

Also any upward movement in interest rates could lead to an increase in insolvencies for businesses that are holding on but not doing much better than that.

All businesses should have a working budget, cash flow and business plan to preempt any possible blip that may occur and recommend you contact us to discuss this further.

Remember turnover is vanity, profit is sanity but cash is reality"