Good cash flow is critical to the success of any business. Yet for many business owners, it’s a constant struggle and the bane of their lives.
One of the key issues affecting cash flow is the ability of your business to make good, sustainable sales. A few years ago many business were facing a downturn in sales. This left them struggling to keep good cash flow levels. Since then the economy has picked up. More business is being done and more sales are being made. Yet many businesses are still facing cash flow issues.
Businesses Go Broke In Good Times Too
With your business thriving, you may have taken on more staff. You might have bought more equipment and machinery to handle the extra business. You may be more “highly geared” now than you were before, so that even a drop of 10% in sales can mean serious trouble.
If your business has high borrowings you may be particularly affected. You might be stuck with high interest rates and/or your home or other assets exposed if you go belly-up. This isn’t a good position to be in.
There are some ways to avoid all this. Here are a few:
- You could work out another deal with your existing banker;
- You could change banks, getting a lower interest rate;
- Or you could organise your borrowings so in effect you become your own banker.
Even if your business is making sales hand over fist, you still need to keep a eye on your cash flow. It’s as important now as it was when things were tight. The same number of businesses go broke in the good times, as in the bad times.
Know Your Forward Cash Flow Position
The key thing is keeping a steady eye on your cash flow. This is vital to maintaining liquidity and profitably in turbulent times. Whether it’s an upturn or downturn in business makes no difference.
It doesn’t have to be difficult. Keep it uncomplicated. Even an excel spreadsheet can provide a simple cash flow forecast. You’ll be able to see how you’ll be tracking in the weeks or months ahead. A forecast of at least 8 weeks ahead is good. 13 weeks is better. Check your expected income and outgoings on a weekly basis, or daily if necessary. This will give you an early warning of any potential problems. Make sure you react to those warning signs and deal with them quickly. There’s no excuse for not having this information available at your finger tips.
Watch Debtors
Keeping a close eye on your debtors is essential too. Don’t be scared to ring your “best” customer if their payments are dragging a bit. Keep up the “pay on time” culture. If you let it slide you’ll end up in a situation neither you nor your “best” customer wants to be in.
At any time when change is happening (such as an upturn in the economy) be ready and willing to adapt. Of equal importance is keeping your eyes on the numbers. Forecast your cash flow well in advance and keep your debtors current.
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