To all businesses cash is the lifeblood of the business and without it they cannot survive. When a business is growing and extending its credit to customers cash requirements become greater.
Follow the links below to view information on all elements of cash flow.
New Finance, Sales, Purchases And Taxes
This is often a ‘one off’ boost to the cash inflow of the business and may take one of several forms:
- Loans from family, friends and banks
- Overdraft facilities provided by banks
- Factoring of invoicing
- For larger companies, issues of shares
Cash Flow Forecasting
The more warning a business has of peaks and troughs the more time the business has to deal with them. Most accounting software make it easier to prepare budgets and revenue and expenditure projections. Specialist programs such as sage financial forecasting allow maximum flexibility for producing ‘what-if’ scenarios e.g. what is the effect on cash flow of a 10% increase in sales or an increase in credit periods allowed from 1 month to 2 months.
In order to control cash flow the business should:
- Prepare annual budgets showing the level of sales that the business expects to achieve and the costs involved in doing so.
- Prepare monthly (or weekly) cash flow forecasts looking ahead for 1 year and updated monthly or quarterly.
These forecasts help to identify when you will receive money into the business and when (if ever) there will be a shortfall. They allow you to identify the major outgoings such as monthly payroll, quarterly vat and you can ensure that money is available for these.
The key to good forecasting is to be realistic at all times. For regular sales use established figures for volumes, pricing and time taken for customers to pay. For new customers or new products/services be pessimistic, expect problems and delays.
Include the forecasts and budgets in monthly/quarterly management accounts which can be sent to your bank. If you need help in producing budgets, forecasts or management accounts please call us on 01384 468320. We have over 20 years experience in providing these services.