Business must monitor future Cash Flow requirements and present Inventory levels to drive growth. The common factor in both of these crucial elements is the product being offered. Product (Goods and Services) is the backbone of any business, extractors (miners or drillers) offer naturally occurring materials, farmers offer mature crops and animals, manufacturers offer process material combinations, tourism operators and lawyers sell time and knowledge, and all such product must be easily identifiable. Each product can have a different cost and price, size and measurement, usage and storage requirement, lag-time between ordering and delivery; that will affect the Cash Flow and the positioning within the Inventory. CONTROLCash Flow, not the present cash position, determines the true health of a business. A large cash position can have numerous calls or obligations charges, causing it to decline quicker than cash comes in. Projecting correct expenses several periods ahead will give a more accurate picture as to the cash availability to implement new strategies. If a negative future cash position is indicated, the business may have to assume debt or seek equity financing to buy inventory, meet payroll and pay other expenses. If the business is not able to secure a healthy cash flow it is insolvent and must be quickly closed.
Inventory has various categories, goods extracted, grown, fashioned or purchased for sale to customers, goods for internal usage, services (time and skills) billed out to clients. The right type of inventory can grow the business and the wrong type can kill the business. The business must invest in what its customers or clients wants. Monitoring Inventory levels, to carry and replace fast moving items and not to over stock the slower movers, to price items competitively so as to make them fast movers and not to price them to stay, to combine products into specially priced offers that will move slow items faster, is good business.
An accounting system with an inventory (re-stock) report, measuring slow and fast movers and what is where, can guide the business as regards to purchasing patterns becoming more accurate over time. Regular purchasing and special occasions buying can be tracked historically, period by period, event by event, and planned for, in terms of marketing strategies, finance required and physical storage. Such an accounting tool must also, track debtors and creditors, payroll and other expenses to report on the present cash availability.
A forecasting spreadsheet taking present balances from the accounting database and projecting twelve months into the future which then feeds into a five-year projection based on strategies in the business plan. Therefore, each and every decision can be guided by the effect shown on the Cash Flow projections.
All successful business works the same, no matter its size, there must be sufficient of the right product and there must be enough cash.
Rationale
T.A.J & Associates Company Limited uses this occasion to comment on topics that have been covered, both academically and by the mainstream media, to add its opinion and point out investment opportunity, not to invoke any social action.
