Are you struggling to keep your business afloat upon the river of a demanding and competitive marketplace? It may be because you’re struggling against the current instead of going with the (cash) flow. Forecasting and managing your cash flow will assist your inaccurate budgeting, ensuring that you always have your finger on the pulse of your business.
Sink or swim
For small to medium-sized companies, how you manage your cash is especially important because your startup capital may not be enough to run the day-to-day expenses of your business, and so you would need to forecast and plan for cash coming in and going out as accurately as possible.
Without accurately managing your cash flow, the ability to pay your suppliers timeously will also certainly be at risk. This could taint the relationships you have with them and damage your purchasing power going forward.
Paying your suppliers on time is just as important as generating sales for your business, which is another area where accurate cash flow management plays a key role. The main focus in any business is to generate sales and income, and therefore the receipts of those sales are essential to determining how your business is doing. Knowing and understanding what your business’s income is and where it comes from allows you to determine what you have in the bank to spend. And that is the basis of managing your cash flow.
Getting a handle on your business’s cash flow
The best method of managing your cash is to first ensure that you have a set budget. This budget can be zero-based or based on prior year’s budget/actual amounts. From this budget, you can then draw up a cash flow forecast. It’s wise to use a pessimistic basis for your forecasting. For example, if your credit terms are COD, it would be best to assume that your customer would pay within 30 days.
Deshika’s three-paddle approach for going with the (cash) flow
- Ensure your cash balances are updated on a regular basis
- Implement strict payment terms for your customers
- Negotiate extended payments terms with your suppliers