Cash flow is now a planning imperative

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For many business owners, sitting back and watching their bank balances rise is a less common occurrence.

COVID, Brexit, supply issues, lockdown and so on have all played their part in the past two years to depress economic activity; some business sectors more so than others.

In the past, we may have ignored the need to plan cash flow. By this, we mean projecting forward the likely cash position of our business based on real-time trading expectations. This has often been down to the excessive time and cost involved in producing a cashflow forecast from historical accounting records, but the spread of real-time cloud-based accounting solutions such as Xero and QuickBooks has made this a more feasible task now. In fact, we have add-ons to these accounting systems that – once correctly set up – will produce a 12-month cashflow forecast for you any time at the click of a button, so you always have complete visibility of your cash position.

As the title of this post asserts, management or forecasting of cash flow is now a planning imperative.

And this advice not only impacts businesses that are already at the limit of their cash resources or lines of credit; it also applies to firms who are able to take advantage of the present easing of restrictions.

If rising sales are made by offering extended credit terms, and if these credit terms are longer than those offered by your suppliers – and don’t forget that salaries and many overheads are paid without credit – then a business that appears to be profitable may run out of cash merely because your sales are lodged in your customers’ bank accounts for too long. Accountant’s refer to this as “over-trading”.

Accordingly, cash flow planning is a must-do activity. It is only by undertaking this process that you will reveal if, when and for what period you will be approaching the limits of your cash reserves. To run a successful business you need to plan for that eventuality well in advance.

We can help. Call now so we can help you take control of your cashflow.

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