Everyone in business knows that cash flow can make or break you.
So how can you manage your cash flow to ensure you don't fall prey to the problems a negative cash flow can cause?
Here are 4 pointers to keep you on the right road to building a strong business based on a solid cash flow.
1. Understand your cash flow variables
In a recent post How to calculate cash flow we showed you the basic equation used to calculate your cash flow. This equation looks at all of the different streams of cash coming into and going out of your business.
These different variables will each play a part in the flow of cash in and out of your business so it is essential that you understand what variables directly affect your cash flow and to what extent.
|Common incoming cash flow variables
|Common outgoing cash flow variables
|Sales of goods or services
|cash interest from investments
|Payment to suppliers
|Loans or grants
|Cash from your Directors Loan Account
|VAT & taxes
|Cash from the sale of bonds, assets or property
|Repayment of loans
|Investments made by your business
|Purchase of property or equipment
So this is what the common variables that affect your cash flow are but do you understand the impact each of them has on your cash flow?
It is important you have a rough idea of the level of contribution each of these have on your monthly cash flow so you can make better, more informed decisions about your business without having to contact your accountant or digging out a clunky spreadsheet.
It is particularly important to re-familiarise yourself with these variables when you are considering growth strategies and tactics. For example, employing more people normally has a significant impact on cash flow, especially in the short-term and it is important you are familiar with the figures before you make any decisions.
Equally, when you get to a point where sales of your goods or services requires further investment to meet demand, you need to know what the increase in sales means for your cash flow. Don't make the mistake of thinking that an increase in sales automatically means a positive cash flow so you can start spending. With an increase in sales will come an increase in supplier costs which will negate some of the positive cash flow effects from the increasing sales levels.
Think of cash flow as a seesaw - keeping the balance is essential to a healthy, growing business. Understanding what is happening at each end of the seesaw is critical for success.
So now you have put a little time and effort into understanding the cash flow variables in your specific business, you are going to want to keep your eye on things on a regular basis. This is where monthly monitoring can pay real dividends. Chances are you check your finances on a monthly basis to ensure bills are paid and being paid so why not include a cash flow report as well?
The FINANSCAPES tool allows you to see your monthly cash flow in a simple, easy-to-interpret dashboard which can be displayed as a graph, bar chart or in a table showing you exactly what you need to know at the click of a button.
This will show you what the last month looked like for your cash flow and you can see which parts of the seesaw are working well and which need a little attention or adjustment. This regular monitoring will highlight any potential issues before they become a real problem which could derail your business quickly.
Regular monitoring will also give you a good indication when it is a good time to start thinking about grow and expansion plans.
Monitoring is very effective at showing us what has happened in the past but what about the future? What will happen to your cash flow if you carry on with your cash flow variables performing as they currently are?
This is where cash flow forecasting can play a significant part in the management of your business.
Forecasting shows you what the future could look like for your cash flow taking your business from reactive to proactive giving you the competitive edge as you make plans based on sound financial forecasts.
The FINANSCAPES forecasting tool will forecast your cash flow based on the figures you put in and show you, in the same style of dashboard, what your cash flow could look like in the future. This will give you the information you need to help you make decisions about your businesses future.
4. Play with different scenarios
But what if you wanted to see what the impact of changing one or more of your cash flow variables could be?
You might want to compare different scenarios and compare the outcomes to make fully informed decisions and plans for the future of your business.
You'll be pleased to hear the FINANSCAPES forecasting tool not only allows you to forecast unlimited scenarios but you can also securely publish them to investors, other stakeholders and bank managers to demonstrate your fiscal planning.
Why not Trial our cash flow forecasting tool now and see how it could help you manage your cash flow with ease and without the risk.
Avoid the cash flow pitfalls with our Intuitive Forecasting Software.