For any business, cash flow is what often causes a business to succeed or fail. Having enough money on hand each month to pay staff, suppliers and the bank manager is vital to avoid spiralling out of control. No matter what chaos is going on around you, having a sharp focus on cash flow will mean you remain in business for the long-term.
“Looking at profit rather than cash flow is like driving a car and looking the speedometer without ever glancing at the fuel gauge.”
– Michael Dell, CEO, DELL Technologies
Why is managing cash flow so important?
You may have heard before that keeping an eye on cash flow is important but may have forgotten why. So first, a quick refresher on what can happen to business if you turn a blind eye to cashflow:
- Retaining staff – Staff who don’t get paid on time rarely stay around too long.
- Maintaining supplier relationships – Paying supplier invoices ensures you retain preferential rates or indeed a supplier at all.
- Reduce interest and debts – The less reliable you are at paying debt the higher the interest becomes and the bigger debt burden you carry.
- Attracting and retaining investors – A cash flow report or forecast is one of the first things a current or potential investor will ask for.
Preventing cash flow problems
When it comes to cash flow management, preventing cash issues is far easier than trying to solve these issues after the event. Positive cash flow comes from balancing your income (the cash inflows) against your expenditure (the cash outflows). If you’re in control of this then the business will always have the cash on hand needed to cover your list of liabilities.
How Forecasting Cash Flow Works
Forecasting cash flow works by taking your cash data from your most recent reporting periods and using this to project, or indeed predict, what the future situation is likely to be. Once cash flow forecasting becomes a habit, it becomes easier and soon second nature. Very soon you won’t be able to do business without it.
Benefits of Cash Flow Forecasting
By running regular and detailed cash flow forecasts, it is possible to do a number of things:
- Understand your future operational cash flow – this helps you understand the regular seasonal fluctuations in your business. Better yet, you will get to understand the tell tail signs a dip may coming and take proactive and preventative measures to guard yourself against it.
- Plan Further ahead – Once short term cashflow forecasting becomes second nature you can begin to plan longer term to help know when to buy new equipment, or not, or expand, or contract premises. Giving you a firmer control on the rollercoaster ride of managing your business.
- Attracting and retaining investors – A cash flow report or forecast is one of the first things a current or potential investor will ask for.
With cash flow, there is nowhere to hide. Figures can’t be fiddled to make things look more impressive than they really are and it is the best reality check you will get on your business. Keep on top of cash flow and you keep on top of your business.
How we can help
If you want to get a grip on cash flow, we’ll help your tailor your accounting set-up and will provide the cash flow forecasting tools you need to reveal your future cash position giving you more and more control of your business’ destiny.
Saige is a leading Accounting and Financial Planning business located on the Central Coast. We help businesses of all sizes and individuals at all stages of their life to achieve their financial goals.
