Why Cash Surprises Happen
- Focus on profit, not cash: There is no point in only looking at the profit number when you’re not managing cash as well. Things like finance/ debt payments, dividends and other ‘balance sheet/ cash only’ items, if not managed, can absolutely kill a healthy business.
- Lumpy customer payments vs. steady outgoings: You might be making profit, but if your cash collection procedures are not well implemented, you can run into trouble really quickly!
- No rolling cashflow forecast: Just looking at next week is fine, for next week, but if you have big outgoings coming up or surprises that you haven’t put a contingency in place for, you may find yourself in a whole world of hurt down the line.
How to Regain Control
- 12-week rolling cashflow: short enough to see bumps, long enough to plan. We actually do a 12 month rolling for our clients, but 12 weeks will get your started.
- Customer payment discipline: get in place clear terms with your clients, and ensure overdue payments are chased promptly. You need good credit control procedures and they then need to be policed correctly.
- Visibility of upcoming tax/VAT: build them into your forecasts early so there are no surprises. They don’t always have to be accurate, but a conservative number is better than no number. A lot of our clients have VAT payments well north of £100k per quarter so these need to be closely watched.
- Scenario planning: As yourself “what if sales dip by 20%?” What is costs increase by 5%?”. Plan for all eventualities so that nothing can hurt your business.
Conclusion
Cashflow shouldn’t be a guessing game. With the right systems, you’ll sleep better and avoid last-minute scrambles with the bank. If you need any help, book a call below and we’ll get everything under control.