It’s important to recognise that a business operates by using the resources available to it. These resources may be owned outright by the business, owned by the business but financed by a third party or simply rented by the business.
By introducing the added factor of a limited company it is possible that assets may be owned outside of the operating company by a company or party that is connected to the company.
Only by looking at the overall resource requirement of a business is it possible to identify all the factors that influence the availability of cash within a business. The impact of resource cost and the timing of payments for resources will be a key factor in identifying the drivers of business cash flow.
Debt Collection and Cash flow
One of the most common impacts on cash flow is the efficiency of debt collection within a business.
This is most regularly the key impact on cash flow that businesses see as being outside of their immediate sphere of control. Debt collection and the overall credit control function is an example of where less than optimum resource management can have a significant impact on the business cash flow.
Sticking with the example of debtor management, it is clear that strategic decisions over issues such as levels of credit given, or levels of deposits taken will have a significant impact on cash flow.
So, it follows that strategic resource usage decisions are key to cash flow success.