Money
Issue No. 43 - October/November 2008
Working capital cashflow solutions
The working capital cycle is the engine driving all businesses – large or small.A quickening of the cycle can make a business run more efficiently by generating more cashflow and profits, whereas a slowdown in the cycle can lead to financial strain and possible business failure. Historically, thriving businesses approach cashflow planning and budgeting as a management discipline. Cashflow planning should be a business priority for all operations – no matter the size of the business or its industry. Efficient processes and procedures position businesses to absorb current market fluctuations and, more importantly, to capitalise on the opportunities inherent in such an environment. Choosing the right source of funding for a particular purpose is an integral part of managing the working capital cycle. Using debt instruments such as asset finance and receivables finance to match business cashflow cycles can help ensure the cashflow required for keeping the day-to-day business operations running is not depleted unnecessarily. Understanding each component of the working capital cycle and employing an integrated approach to managing them will help businesses avoid a working capital crisis. It is no use waiting for performance indicators to deteriorate before taking action. Staying on top of this isssue should be core to a business’ day-today operations. To help ensure businesses are on the right track, Commonwealth Bank has identified a number of simple steps that can be taken to manage cashflow better, to avoid a working capital crisis:
1. Set up a dynamic cash flow budget Process
A cash flow budget can be a valuable business tool. As we have recently experienced, business conditions vary. Regular reviews of budgets on business activity, payment terms, supplier demands and costs will help to identify potential cashflow problems early and take corrective action.
2. Extend working capital initiatives across the company
Problems cannot be so...
