Cashflow Management

Cashflow Management

The old, and true, saying that “cashflow is the lifeblood” of business stresses just how important cash flow is for all businesses.  It is particularly important for start ups and new businesses

It’s logical when you think about it.  You could have an amazing business plan, a fantastic forecast and you could be showing a brilliant profit on paper but if your customers aren’t paying you that means you’ll be unable to pay your suppliers, or your staff, or yourself… and then it’s easy to see why the business would be unable to continue.

Hopefully though, the below tips will help you identify and navigate any difficulties which may be appearing on the horizon.

Know what is in the bank

Knowing how much cash you have in the bank is the first step of managing your cash flow as a business.  Fortunately, the way technology has integrated itself into our daily lives means it is simple to know what is in your business’ bank account at any given moment.  You no doubt have a business banking app on your smartphone, and with a few deft movements of your thumb you can see how much cash is sitting in the account.

Create a 3-month & 12-month cash flow forecast

Create a forecast of your cash flow over 3 months and 12 months. It can be as detailed or as simple as you like.  You can use something like Microsoft Excel or an equivalent to do this yourself or you can ask your accountant for help completing one, some may even have a template they can send you for you to overwrite with your own figures.

The 3-month forecast allows you to make sure that you have enough cash to cover trading in the short term while the 12-month forecast is a little more mid to long term.

Update your sheet daily/weekly with the actual figures

As you slot in the actuals it allows you to see in advance where the cash is being spent.  It allows you to see if funds are required for working capital (as they are in week 1 and 2 in the above example) or if there is a surplus available to invest in capital expenditure or taking on staff.

Plan ahead

When you see a shortage of funds (which is likely as a start up!) make sure you know in plenty of time.   The earlier you know, the easier it is to plan and ensure you have short term finance in place to cover the shortfall.

Look at other ways to improve your cash flow

There are other options to improve cashflow, including but not limited to increasing credit with suppliers, leasing your capital expenditure, getting a bank loan and improving the time it takes for you to get paid by your customers.

A big thank you to Lloyd at Llama Accounting for sharing this information with us.

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