Peer to peer lending is all about sharing and collaboration, so today we’re delighted to have a guest article on the FundingKnight blog. We want to make the blog interesting for all members of the FundingKnight community, including businesses looking for funding or those who have already used us for a small business loan and today’s guest author certainly has plenty of good advice for small businesses hoping to improve their financial management.
Steve Bicknell is the Group FD at SCA Group www.sca-group.com. He’s held a number of Directorships and created Accounting 4 Business. He’s a fellow and Panel Assessor for CIMA and his blog and You Tube videos hold a wealth of tax and accountancy advice. Today, he’s talking about understanding cash flow, we hope it’s useful.
As the saying goes, Sales are Vanity, Profit is Sanity and Cash is King. The Cash Cycle also known as the Working Capital Cycle helps you to quickly understand how much cash you need to run your business.
Here is a great example from Steve Grice for an average business
Average time to collect payment from customers 60 days plus..
Average days sales held in stock 25 days less..
Average days taken to pay suppliers 35 days equals…
Cash cycle 50 days
This means that you need enough cash in your business to finance 50 days worth of sales. If your sales are £1,000,000, you will need cash of £136,900. In practice, your business will probably need more cash available than this to pay for rent, rates, wages etc. You may also get cash spikes at the quarter end if you pay VAT.
Here is a brilliant Cash Flow Improvement Tool from NAB http://oms.nab.com.au/media/10/power_of_one/CF.html
This model quickly and easily calculates your cash cycle but also shows the effect of making improvements.
Click here to read the rest of Steve’s post on find links to his other material.
This article was first published on www.stevejbicknell.com and is re-posted with permission.