Cash flow is one of the most important factors in managing your business, especially in our recent economic downturn. Even profitable businesses can fail because of poor cash flow management.
So how does a business manage its cash flow better? The first step is to prepare a cash flow forecast and one of the excuses businesses use for not doing this is that they don’t know when their income is coming in.
When it comes to putting it on paper, most business owners are surprised by how much they do know. We regularly prepare cash flow forecasts for many businesses including builders, developers, manufacturers,
wholesalers, contractors and of course ourselves.
It helps you plan ahead, it allows you to see the state of your bank account/s at any particular time so you can plan for capital purchases, advertising campaigns, new projects that may require upfront expenses or
capital investment and of course tax liabilities.
A smart cash flow forecast will have lots of clever formulas in it so you can plug in things like; ‘what if we win this project?’, ‘what if we raise prices by 5%?’, ‘what if we improve our gross margin by 1% or take on an extra
employee?’. It is a living document that is constantly updated so the actual results flow through.
Once this valuable business tool is in place, you are able to make informed decisions about the direction of your business. We recently helped one of our clients determine which type of job was the most profitable for
his business and showed him the flow on effects of this type of job in his cash flow forecast. It was clear that the business needed a change in direction, and it was any easy decision for our client to make and follow
through with as he could see the positive changes in his bank account with each passing month. This business is now more profitable and has a steady cash flow, with the owner working smarter, not harder.