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Stop what you're doing! Have you checked your company's cash flow lately?

by , 05 March 2013
Does your business have a spare R1 million? If not, you better be careful. According to the 2008 Companies Act, if you don't perform a liquidity test before you enter into transaction, that's how much you could be fined! Read on to discover the best way to perform a liquidity test to identify your company's cash flow needs...

'A surprising number of commentators thought Finance Minister Pravin Gordhan's latest budget was good and well-balanced,' writes columnist David Gleason on Business Day Live.

But 'quite how anyone can arrive at that conclusion when the government intends spending nearly 6% more than its revenue, beats me,' he adds.

It just goes to show you that even government gets it wrong when working out how much cash flow it needs to pay its day-to-day expenses.

That's why it's so important for you to do a liquidity test for your company to ensure your cash flow isn't negatively affected when you enter into large business transactions like declaring a dividend for shareholders or merging with another company.

Here's what you need to know to perform a liquidity test…

Cash flow forecast – the best way to work out your company's liquidity…

'Creating a cash flow forecast is really the only way you can see if your company's liquid has enough cash to pay its day-to-day expenses,' explains Douglas Taylor in the Practical Accountancy Loose Leaf.

After all, your company's 'financial statements don't show which assets can be readily turned into cash and at what cost, or when you can expect to get more cash. Only a cash flow forecast can tell you this,' he adds.

And remember, cash flow problems don't just happen. They're a while in coming and can be anticipated and prevented if you take the trouble to plan for them. So do a cash flow forecast today to ensure you don't get caught with too little money in your account.

For more information on how to set-up a budget cash flow get your hands on the Practical Accountancy Loose Leaf. In the Practical Accountancy Loose Leaf  we've got a dedicated chapter on budget cash flows. In it you'll discover:

  • What is a cash flow budget?
  • 4 Advantages of a cash flow budget
  • 13 steps to prepare your cash flow budget
  • 8 Tips to improve your cash flow position
  • 8 ways to effectively use a cash flow budget in your business
  • Cash flow budget example
  • Cash flow budget template
Get your Practical Accountancy Loose Leaf here...

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