Improving cashflow


If your business does not have a steady stream of money flowing into it, you will be unlikely to be a going concern in 12 months.

On the other hand, every business will have regular costs that they have to pay out. These payments can range from the cost of buying materials to making sure your staff remain sufficiently caffeinated.

A successful business needs to keep the balance between money coming in and money going out weighted on the side of the former.

Why cashflow is important

Thinking of good cashflow as a balancing act can be a useful metaphor. Your instinct may be to tip the scales heavily in favour of maximising the amount of cash you have. This however, could have negative consequences because cash is not a productive asset when stored away.

It might be a better option to use your money to buy assets or equipment that will help you increase your sales. This would result in a temporary tip of scales towards money going out, but it could put you in a healthier long-term position.

Conversely, if your monthly outgoings are roughly equivalent to your incomings then you may not have the resources at your disposal to capitalise on opportunities.

Good cashflow management will also give you a clearer picture of your ability to take out and repay loans. Being able to see exactly how much money is coming in and when it tends to arrive will allow you to build an efficient repayment plan.

Achieving and managing the kind of cashflow that is suited to your business is crucial to its long-term survival and its ability to evolve and grow.

Cashflow forecasting

Being able to accurately forecast your cashflow over a long period of time is incredibly valuable. If your business is seasonal in nature or has busy periods, you will be able to plan accordingly.

Before you can start creating a cashflow forecast you will need a:

  • sales forecast – how much you expect to sell over a period time
  • profit and loss forecast – your business income and its day-to-day running costs, giving a profit projection.

There can be a lot of complexity involved in creating the above forecasts, so seek expert help if you are unsure about any aspect.

To create a cashflow forecast, you should look at the following:

Money in = your sales forecast + any non-sales income

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