Cash Flow Management is Fundamental in Growing Your Business.

Forecasting and business modelling are pivotal in creating a sustainable and growing business, however, many businesses often overlook just how fundamental cash flow is in allowing a business to flourish. During times of recession, the businesses most commonly affected are those who do not have a clear grasp of their cash flow.

 It is fantastic to be able to look at your sales forecast and invoicing and see a healthy profit but what happens when you need to pay suppliers and employees within 15 days but your customers pay you on 90 days?

 How does this affect your business?

 The delay between the time you need to pay your suppliers and employees and the time you collect from your customers can be problematic with many “profitable” companies going out of business as they simply did not have the cash to meet their obligations. 

Cash flow management is the solution.

By understanding your projected cash requirements such as supplier costs, utilities, rentals, HR etc you can forecast your monthly cash demands over a 6 or 12-month period. This, used in conjunction with your sales forecast (and customers adhering to payment terms of course), allows you to see trouble spots before they happen so you can plan accordingly.

 How do you prepare a cash flow forecast?

There are a number of tools that will assist in cash flow management and many of the cloud-based accounting systems connect directly to your bank to give you a live cash summary position and allowing you to create a cash flow forecast over a period of months. Be careful as you may need to adjust this for customers that always take that bit longer to pay.

If you are not yet running a full accounting package you can still glean the information you need using a simple spreadsheet. Start by taking your bank balance at the beginning of a month and add projections of cash to be received from customers and other sources such as bank interest.

Now, look at your cash outlays. Have a line on your projection for every significant business expense. 

Finally look at the predicted closing balance – are you left with a positive figure? Do you need to start examining how you can increase cash collected and reduce cash expenditure?”

When some businesses see a deficit in the cash requirements they often scramble trying to close deals and give away high discounts to obtain a sale not always understanding that this may actually cause further problems such as less profit for this sale, extra expense from pursuing this order that may need to be paid before the client settles their invoice, setting a precedence for your customer to negotiate better rates in the future based on knowing you can price cut.

Below are some quick tips on how you could look to improve cash flow without adversely affecting your business…

Improving cash receivable

•    Issue invoices promptly and follow up when they are becoming due and overdue – many accounting systems can automate this process for you and allow you to adjust the message to suit your business style

•    Require credit checks on all new customers requiring payment terms and set credit limits appropriately

•    Offer discounts to customers who pay their bills quickly if this is appropriate

•    Ask customers to make deposit payments at the time orders are taken.

 Managing your expenses

•    Take advantage of creditor payment terms, do not negatively impact your cash flow by paying a supplier early;

•    Consider suppliers' offers of discounts for earlier payments; and

•    Don't always focus on the lowest price when choosing suppliers. Sometimes more flexible payment terms can improve your cash flow more than a cheaper price!

At Nicola Hageman Accountancy we will work with you to understand your business and offer sensible and realistic advice on forecasting and managing your cash. Our goal is to get you comfortable with your financial position so we will guide you through how to use your cloud accounting platform to readily access your cash summary. Depending on your service subscription we can also provide regular updates and calls to make sure you are on top of your cash flow.

 Get in touch today and see how we can help.



Nicola Case