Cash Flow
No matter what business you are in the same principles apply, if you run out of cash your business will struggle to continue. If you cannot pay your suppliers, you will having nothing to sell and it’s a quick viscous circle from there to insolvency.
A good business needs to have a positive cash flow and this needs to be constantly monitored. This is where a cash flow forecast is essential. It is a simple business tool which allows you to foresee potential gaps in the cash flow which in turn means you can prepare i.e. short term lending.
A basic cash flow forecast will only take a few hours to set up initially and then a short amount of time each week to keep up to date. If you require assistance in setting one up please contact us and one of our experts can assist in setting up a bespoke forecasting tool for your business contact us.
To get set up you need to hand basic information about the money coming in and out of your business each month. Such as bank statements, utility bills, rental agreements, finance agreements etc.
If you have a great deal of outgoings it is sometimes easier to group some costs together such as telephone, internet and mobiles. Then these figures need to be entered into the expenditure part of your cash flow. If you think these figures will remain constant enter them for the other 11 months, however if you estimate they will increase at certain times of the year include this also.
Next figures for your revenue need to be entered. Remembering that work that is complete now may not be paid for 30 or 60 days. Some of your revenue may be a constant monthly payment or your company may be seasonal in its nature.
Finally get the opening bank balance for that month. Each month you should check that your bank statement matches up with your cash flow forecast. This also will allow you to foresee any mistakes or over/under assumptions you have made.
Cash flow forecasting is now complete. It is vital that this is now reviewed on a regular basis. Every single expense and income needs to go into this forecast so an accurate picture is illustrated of how the company is trading. This information is invaluable to your company. If the cash flow illustrates that you will be exceeding your agreed financial facilities within 6 months you have the time to prepare for this.