Cash Flow Forecast
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In any business, cash flow management is the highest priority, and a routinely prepared cash flow forecast is the tool you need to successfully manage the flow of money in or out of your business in such a way that you always have sufficent cash available to meet your requirements. I've seen very successful businesses managed by their cash flow statements alone. Let's make your business one of them.
Business Doing Well, Sales Rocketing along? Watch Out!
Being in a situation where sales are bubbling along nicely, and growing at a healthy rate does not mean though that you can kick back and relax. Be aware that a growing business needs food. And that food is cash. To keep you business growing at a healthy rate you need to feed it cash. And if you overtrade (try to grow too quickly), you suck all cash away. This is an excellent reason why you need to operate a cash flow forecast as a matter of routine
What happens if…
Get it wrong and your no longer in business - you're out of it. Yesterday's news. Just another business failure to add to the statistics. Well I say: Don't give those statisticians the opportunity to sharpen their pencils and switch on their calculators. No sir! Be gone.
Cash Flow Forecasting is good for your health - no really.
One of the first warning signs of cash flow difficulties are that you place pressure on your suppliers by not paying them on time. (What do you mean you don't have credit terms with your suppliers? Pick up the telephone and ask for some.)
Then, if they've got effective cash flow controls in place, they'll start phoning you up, sending you email's, or a series of ever increasing awkward letters starting "if you don't pay within 7 days then we're gonna take you to the cleaners". If you're already in this position, don't be afraid to negotiate. Go for stage payments. Some Today, some next week etc. Don't be surprised if you have to pay interest on the amount owing.
If you run a small home based business then the equivalent of this situation is that you don't have enough money to pay down the credit card that you used to make your purchases. And before long you probably won't have enough to pay even the minimum payment.
Then you'll worry about it, be anxious, feel stressed, and you'll probably have a sick feeling in the pit of your stomach. That's why sound cash flow management is good for your health.
While all this is going on of course, you've been distracted from your main goal of growing and running a profitable business. Yes, yet another distraction from value adding marketing and sales activities. Blast those vermin, they're all over the place.
Further Cash Flow Warning Signs.
If things continue to get worse, and you can't manage to pay to the agreed schedule, you will find yourself being summoned to attend court. In some countries, you could receive a winding up order (to close down your business), or bailiffs may attend your premises to take your equipment to settle the amount owed. That'll really throw a spanner in the works.
In a worse case scenario pressure from suppliers will be the least of your troubles. You may get into a position where you fail to meet scheduled payments on a bank loan, or you will need to borrow more than your allowed facilities (breach your banking covenants). Then the bank will move in to take over. Sharpen their pencils, and get their calculators out. No. No No. You've only just got rid of the last pencil sharpening calculator toting troublemakers. Don't let them press the on switch.
Cash Flow Management Solution
What you need is a cash flow forecast that will help you manage the cash flowing in and out of your business so you can do something about any trouble before it strikes. A tidy one page cash flow statement that shows you where the tight spots are and can give you strategies to resolve them.
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