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“Cash is King” is a well-known principle that small business owners become aware of early in their business life.

However, with the significant upheaval to normal business relating to the impacts of Covid, it is more essential than ever to focus on the cash flow of your business so that you can plan and position the business to better cope with the challenges you are facing or may face in the near future.

One of the greatest business fears is “the fear of the unknown” as you look at the bank balance and worry about if things continue what is it going to look like next week, next month or in 6 months’ time.

Not knowing an answer to those questions can produce additional stress that impacts your business thinking and sometimes your sleep at night.

It is important therefore to look further than your current bank account to get an accurate picture of what the balance will look like in the future.

Cash flow forecasting requires assumptions to be considered. Then, based on those assumptions, a forecast can then be made which will help you identify points in time where your bank balance may reduce below an amount you are comfortable with.

So, the first step is to do a cash flow forecast to see what it tells you about what your cash flow position of your business could actually look like. And then, depending on what it tells you, develop a plan to see what action can be done to improve the position.

Because you know well in advance where the crucial points are, planning can mean, for example, going to the bank in a less stressful environment with a financial proposal say 6 months before it is needed.

It could be that inventory needs to be better managed to release cash currently held in stock.

Or, it could be that an invoicing policy review needs to be done as to the timing of when you issue your invoices, or up-front deposits and progress billing possibilities.

It could be that your payment terms need to be reviewed, or a more focussed and systematic approach to the collection of debtors implemented.

Whatever the result you will at least then no longer just have an “unknown” that you are worrying about. You will have a picture that you will then be actively trying to improve. Therefore, you will be in more control of influencing the outcomes.

If you would like assistance with cash flow forecasting for your business, please contact our office.

Rod Mullavey

Rod Mullavey