If you are a small business and you are looking for some good honest advice then why not visit this business forum where you will find other business owners discussing various business matters.
Running a small business can be a lonely experience – so that any help can be greatly received.
There are many ways of improving business cash flow and we have given you a few ideas to do just that.
To help you see how these ideas can help your business it would be worth while doing cash flow projections. The Cash Forecaster can be used as a management tool to identify critical costs areas of the business and how these impact the future ‘Cash-health of the business’.
For example – you might like to experiment with introducing Factoring or Invoice discounting to improve the inflow from your customers whilst the business is in expansion mode.
“Just because a business is making a profit it might still fail if the profits are not turned into cash – Remember ‘Cash is King’ in business!”
You may have heard of the term ‘Over Trading’ – Over trading is where a business is making good sales and profits but that it is not able to keep up with payments to suppliers simply because their customers are late in paying the them. The obvious way to correct this is to make sure that your payment terms to your suppliers are more generous than those given to your customers and by keeping on top of your customers and how quickly they pay you. Alternatively, the introduction of Factoring will help.
Having a Cash Flow Management tool to hand will help you to explore the effect these ideas will have on your business:
1. Increase sales and in particular those involving cash payment or payment by standing order or direct debit.
2. Reduce your direct and indirect costs and overhead expenses.
3. Consider increasing your prices and especially to your slow payers – see our “Profit Increase Software”
4. Review the payment performance of your customers and be more selective when granting credit – start using a credit report company to check the credit worthiness of potential customers.
5. Consider up-front deposits or multiple stage payments – approach a loan company to advance the money to you and offer credit terms to customers.
6. Reduce the amount of credit given to customers and change your payments terms – i.e. reduce the time allow for customers to pay.
7. Introduce factoring or invoice discounting to accelerate receipts from sales.
8. Make sure that your sales invoices are raised as soon as the work has been completed.
9. Offer early payment discounts and consider introducing late payment charges or fees.
10. Generate regular reports on receivable ratios and aging or your customer balances and use more pro-active collection techniques – involve your sales team and make sure that any commissions are only paid where customers pay the company.
11. Consider the 80/20 rule with regards to your customer list and product lines – make sure you know where your profits are coming from. You might well find that 80% of your profits are coming from 20% of your customers or 80% of your profits from 20% of your product lines – if either of these are true consider not dealing with the 80% of customers and cancel the 80% of non profitable product lines. Be careful when do this, as it might be that certain products are reliant on others, in which case they may be ‘Loss-Leaders’.
12. Take a look at how you pay your suppliers – ask for extended credit terms. Get new quotes from other suppliers and re-negotiate prices of existing supplies.
13. Try to reduce your stock levels (inventory levels) and improve control over work-in-progress – make sure that you are billing work in progress on a regular basis and keep write-offs under review.
14. Sell off or return obsolete/excess stock (inventory).
15. Defer or re-stage all capital expenditure.
Planning these changes and which ones work best for your business can be done using our tried and tested Cash Forecaster.
Cash Forecast has prepared easy download cash forecasting software and depending upon the needs of your business, whether that be a small or large business, we should have the right product for you here.
- Small business short-term cash flow and profit forecasts for 12-months. Buy and Download
- Small to medium business short to medium-term profit and cash flow forecasts of up to 3-years on a monthly basis. Buy and Download
- Medium sized businesses that are looking to prepare longer-term profit and cash forecasts of up to 5-years on a monthly basis. Buy and Download
- Larger businesses that need to take an even longer-term view of up to 7-years for profit and cash flows and where businesses also have more product lines to forecast forward. Buy and Download 10 Product lines; Buy and Download 20 Product lines
If you are looking for cash flow forecast templates and for an easy life when preparing a cash flow forecast for your small business – you need look no further.
Cash Forecaster has been built using thousands of formulas and is based upon Microsoft Excel. It is an effective template for preparing cash flows for most sizes of business and what’s more – it is easy to use.
There is no need to spend hours working out the formulas or indeed the interaction between revenue and cash inflows or between expenditure and cash outflows. All you need to do is to make a few adjustments to the settings that apply to your particular business and then enter your data for up to 7-years, depending upon the version of Cash Forecaster you purchase.
If you would like to take a look at our user manual or if you want to trial our free cash flow forecast version before you buy please do so.
If you are looking to for advice on creating a cash flow forecast then here are a few tips and pointers.
Firstly you need to distinguish between what is ‘Revenue and Expenditure’ and what is ‘Cash Inflows and Cash Outflows’.
Let me explain this by way of an example:
When you raise a sales invoice to one of your customers there are differences between how this transaction affects profit and how the same transaction affects your bank balance and when.
Let’s say you raised the invoice on 28 November 2009 and the invoice was for £1,000 (net of VAT or Sales Tax). For profit and loss purposes you would include £1,000 in the November profit and loss account, which is very straight forward and quite obvious really. However, when it comes to recording the ‘Cash-effect’ of this same transaction you have to put a little more thought into how you record it.
Firstly, if you are a business that has to charge VAT or Sales Tax then the amount that you will receive (the Cash-Inflow) will be more than the £1,000. If the rate of VAT or Sales Tax was 15% then the amount of ‘Cash’ you will receive into your bank account will be £1,150 and not the net amount of the invoice. Also, not all customers pay you straight away and in some cases customers can take months to pay you. So let’s say that this particular customer pays you in 30-days time, which would be on 26 December 2009 (forgetting for the minute that this is in fact Boxing Day!). Therefore for cash flow purposes you would include £1,150 in the December cash flow forecast – giving you a timing difference.
Finally, you would then need to include the £150 as a ‘Cash-Out’ part of your cash flow forecast when you paid the VAT/Sales Tax to your Government, which might not be until February 2010.
There are other complications that might come into play with your profit and loss versus your cash flows and you will have a similar complications associated with business expenditure and how these interact with ‘Cash-outflows’.
The best way to prepare a cash flow forecast is to spend a bit of time planning it and reviewing what actually goes on within your business. You will also need to consider any capital expenditure you might be planning and how this impacts on your cash flow and how the depreciation of these assets impacts on your profit and loss account.
Cash flow forecasting for business is probably one of the most important planning reports a business owner can do and preparing a business cash flow forecast should probably come before a profit and loss statement.
Whilst making a profit is a vital indicator of how well a business is doing or not, its monthly cash flow is a key to its overall success or failure. On paper a business might show fantastic profits, but if that same business fails to collect what it is due from its’ customers it will not be in a position to pay any amounts that fall due.
So to use some form of cash flow forecast template or forecast spreadsheet to prepare cash flow forecasts in order to plan when the inflows and outflows of money happen is a key business planning tool. Microsoft Excel seems to be the most popular spreadsheet software on the market although Lotus 123 and Open Office Calc are also just as good. However, there are also a number of cash flow forecast software products available on the market which is a better option to avoid spending unnecessary time working out complex formulars etc.
I think that most businesses these days accept they should use accounting software to keep the accounts of a business up-to-date, but I am not sure whether they feel the same when they have to prepare cash flow forecasts. Cash flow forecasting software takes away the hard work and allows the user to concentrate on putting the figures together, rather than having to focus on how to work out the interaction between profit and loss versus cashflow.
A basic cash flow forecast should be a representation of when a business is likely to receive money and when that money is likely to be spent. It is important to recognise the difference between what represents profit (Revenue less expenditure) and net cash flow (Cash inflows less cash outflows). All cash flow reports should include a balance sheet to prove that the figures are in fact in balance.
Cashflow is to business like blood is to life!
Without blood life for you would not exist and in comparison cash is the life blood of a business. A business needs a good flow of cash in order to survive.
In life if you have a hemorrhage you are in serious trouble and if that hemorrhage is not stopped very quickly you will die! This is the same for any business – not only do you need to have good cash inflows you also need to prevent any major cash outflows or cash hemorrhaging!
For a business to survive and to be healthy it needs to be profitable with good cash flow!
