Cash gaps and cash flows the oxygen of your business, no business can survive without out, getting it right is important. Yet so many fail to do it, understand it or do it right.
Here are some tips and errors commonly made
Be Accurate about when purchases are paid and invoices paid
If you purchase in January on 30 day terms the cash leaves your business most likely on the month end run not when you receive the goods. Likewise with sales January sales will most likely be paid at the month end or end of month following. Know your customers and when their payment runs are and be alert if one of them misses when they normally pay bang on time. Factor in a percentage of late payment it is the exception rather than the norm for all customers to pay on time.
Don’t forget the smaller things
The more honest you are with your cash-flow the better for your business, factor in the smaller things, those small expenses that a BDM or Director doesn’t think significant add up. Budget for them, for instance ten average coffees a month plus a bar meal or similar will easily take £70 on average out of the business. Likewise those small customers that owe small amounts, ten of those at £50 is £500 out of your profit without thinking.
Predict your Cash-flow and then de-construct it, with best and worst case outcomes.
Work on two or three different scenarios, supplier price increases for instance, a reduction in sales, perhaps an insolvent customer? A dip in productivity. By doing this you will be better prepared if they happen.
Remember to factor in seasonal variations
A great example of this is Summer Holidays, cash always slows at this time, are there times when your business uses more fuel be that standard utilities or transport?
Remember when the VAT man and PAYE are due
If you treat sales at net value never perceiving the VAT as yours setting aside the VAT element of cash received then you are seldom likely to fall short. Similarly balance the incoming vat and outgoing, that way you can reserve the excess for when the bill lands.
Run in tandem with your accounts
Adjust your cash-flow on the half yearly accounts or quarters, fully refreshing it at each financial year end.
Try to stay within 18 months
We all know about five year business plan’s but cash-flows are too sensitive to stay still for five years. So many things affect them in the economy and not just our home economy but the European and world economies.
Check in from time to time
Don’t do your cash flow then file it, work alongside it that way you can see if you are performing anywhere in line with it, that does not mean panic if your sales are down or cash in the bank is down, a big frustration is young businesses is the “slow burn” the effort and work put in to break even let alone see profit. The first five years are hard as the drive to gain new business and balance costs will often see cash flow ebb and flow.
Don’t give up too easily and don’t ignore obvious signs that you have to address.
All businesses experience growing pains, cash-flow forecasts are variable if your business manages to stay along or near the line then you aren’t getting much wrong.
