Many Small to Medium Businesses struggle to grow and thrive due to Cashflow constraints. Imagine if these well meaning small to medium businesses had sufficient cashflow and the skills to efficiently allocate capital to their projects that met their Risk/Return targets or KPI’s. On this Australia Day would it not be awesome if we could each contribute something within our means to keeping our Nation Great and Successful. Having a very successful and thriving SME Business ecosystem is one of the greatest gifts we can give Australia using our multicultural talents. SME Businesses are the backbone of the Nation and provide the nation the largest number of job opportunities.
My little contribution on this Australia day is a small tool called the Cash Conversion Cycle Calculator. This back of the envelope tool calculates the number of days it takes your business to generate pure cash. The longer it takes to generate cash in your business, the greater are the chances of facing cashflow constraints which affect business success and sustainability in many ways. It may mean you have to borrow more money and look around more for funds to keep growing. This can increase your business risk. If you know the cash conversion cycle target for your business, it helps raise red flags in time when this is close to being breached and helps you swing into action before it is too late.
I believe if every business owner can spend the first 10 minutes every quarter reviewing the conversion cycle calculator, he/she can become more intimate with the cashflow patterns of the business and have a mental check of any potential cashflow challenges that may need to be addressed soon and they will be better off for having done so. I am a firm believer that this ritual must be done by themselves regularly and along with a silent and sincere prayer to G-D for wisdom and blessing to lead him or her in the right path and in making successful business decisions.
Please have a look at our DIY Cash Conversion Calculator and play around with it and try and customise it for your business pecularities. I believe this will help us ask the key questions we need to about our business health and performance. Good Luck!
Have a Blessed Australia Day!