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The Importance of positive cash flow and balancing this with day to day business

8 · JUL ·2011

Many businesses in modern economies today are running on very tight cash flows, where they tend to wait for debtors to pay them before they can release funds to their suppliers. In these instances, overdrafts, bank loans and further capital investment in the business are essential to maintain cash flow which can put a company in danger of over leveraging its balance sheet. The more the economy teeters on the edge of a double-dip recession, the more it is likely that these businesses will feel the pinch. We have always maintained a very good positive cash flow and it has always been our priority to maintain it. With the economy very fragile at the moment, we feel that our business is better placed to weather the storm and continue to provide our customers with a secure, top quality service where they do not have to worry if we will be in business in future. When customers choose an internet provider, this would be a great concern of theirs so we reassure them with showing a good solid cash position. The question always arises in a business on how much or how far can we leverage our balance sheet to maintain our goals. We certainly feel that by leasing hardware with a hire purchase company (obviously negotiating good rates!) has helped our business achieve solid growth without damaging our cash flow. We are certainly better poised to be able to reactive positively to any changes in market conditions or technology, knowing we have cash reserves to do this. As we are financing fixed assets, it tends to lower our liquidity or acid test ratio (Current Assets against Current Liabilities), but greatly bolsters our net asset position. Investing in fixed assets whilst growing the network will also have this effect. Customers should consider rental options as this will help cash flow in the short term and as hardware is usually technology specific, is it actually worth purchasing hardware outright, only to discard it when changing internet providers in the future? By offering our customers the choice, we are now provisioning more and more high value fully resilient services to businesses where connectivity uptime is vital to their operations without them having to invest heavily in the hardware to run it. Our headache is to keep the balance between assets and debt on the balance sheet whilst still offering our customers the choice. Having said that, this model we have adopted has done us well and made us stronger to keep offering innovation without restrictive upfront costs.

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Posted by Sanita Karra