By now it goes without saying that Covid-19 is causing huge financial challenges for businesses and individuals however financial pressure can occur at any given point in a business’ life cycle so today I want to talk about cash flow. As the saying goes the best time to get on top of cash flow requirements is 12 months ago, the second-best time is today. The good news is that there are plenty of things you can do now, and in the future, to improve your cash flow.
Often businesses focus on metrics such as improving revenue and profitability and whilst these are good and often exciting measures one of the most important metrics for any business is ensuring there is enough cash in the bank to keep the lights on. Insufficient cash flow is the single biggest reason businesses fail and as business owners we can often get caught up in the more exciting aspects of accounting and lose sight of the importance cash flow plays in our businesses. At times like these when many businesses are feeling the pressure of tight cash flow please take comfort in the fact there are some things you can do to improve your current situation.
What can you do now?
- Start a plan - it’s not too late, if you don’t have one already start a Cash Flow Forecast, if you have a Cash Flow Forecast but it’s out of date update it. It doesn’t have to be award-winningly beautiful it just needs to help you understand your business’ requirements. Start with the cash you have in the bank account today – look ahead as far as you can reasonably forecast (which may only be a few weeks) and work out the payments you expect to make over that time and the cash you expect to receive over that time.
- Cut unnecessary costs – remove any unnecessary spending as this immediately improves cash flow. It may seem obvious however it’s the most effective way to improve cash flow. You may be surprised how frugally your business can operate.
- Send out any sales invoices you are yet to issue/gently chase any overdue invoices.
- Focus on the positives – working from home saves money on commuting, lunch, coffee etc.
- The Government has put in place a stimulus package to assist businesses and individuals during this difficult time, speak to an accountant to see if your business can benefit from this package.
What can you do in the future?
- Keep forecasting - cash flow forecasting is one of the most valuable ways of helping owners sleep at night. Once you understand your business’ Cash Flow Forecast you can use it to help grow your business.
- Update your forecast regularly - a useful forecast is updated regularly, depending on your business this could mean weekly, monthly or quarterly. Your business changes, the world changes, goals and plans change so the most important part of any forecast is to keep it up to date. Unlike budgets Cash Flow Forecasts shouldn’t be rigid, a forecast should be fluid and should reflect the business’ current situation.
- Set a budget - even if you’re the only employee in your business a budget is a good way to keep a close eye on spending and to hold yourself accountable, ensuring you don’t overspend unnecessarily.
- Set cash flow goals – if we don’t set specific goals our goals are merely dreams. Decide on a goal, write it down and work on a plan to achieve that goal.
Stay well, stay positive and stay social (but only online for now)!