Cash flow – why cash is king and how a forecast can help
Posted on 13th July 2020 at 09:41
A positive cashflow keeps a business running whilst negative cashflow causes a business owner sleepless nights and may even be severe enough that the business fails. It’s one of the main reasons most start up businesses don’t survive past the first year.
Spending too much or investing in new people or equipment without sufficient planning may lead to cash shortages and often a business owner will then have to step back into the business to get lingering jobs out just so they can be invoiced and the cash collected.
New businesses are often at risk of over-trading whereby they take on every job that comes their way, buying up supplies and paying staff or subcontractors to deliver the work but then they have to wait to get paid. Meanwhile the next job starts and they need to lay out more cash to start it up, running down their remaining cash reserves even more. Before they know it, they are having a cash crisis even though they have a busy sales pipeline.
Create an easy cashflow forecast
The best thing that a business owner can do is to create an easy cashflow forecast that they regularly update (or get an accountant to do it for them).
Creating the forecast, and keeping it updated, is a hugely valuable way to spend a few hours. It doesn’t have to be overly complicated but it should clearly show you whether you have enough cash to pay all your suppliers, your employees and to pay you a proper wage. You also need to be able to pay all of the businesses tax bills. If there are any black holes then you have visibility in advance, allowing you time to put measures in place to resolve the problem.
If you are flush with orders and the sales pipeline is looking good but you have no idea if you can pay the team next week then cash isn’t under control. Engage an accountant to help you put together both a forecast, and a plan of action to resolve it, or you risk seeing your hard work come unravelled.
Call our team today, or contact us to book your free call to see if we can help you create an easy cashflow forecast that will help you manage your cashflow.
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