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In this month’s Business Column, Business Support Specialist Heidi Green explains just how important managing your cash flow is if you want to see your business succeed and grow.

Considerable research has shown that poor management and running out of money are among the main causes of business failure. Not having sufficient cash in the business undermines its ability to flourish. As it grows it is likely to need more cash to maintain it. Grow too fast with insufficient cash and it could mean the end of your business.

When cash flow is under control you’ll actually spend less time managing business finances. If the business requires investment, positive cash flow provides more options to fund growth.

However, any cash forecasting should be accurate and reliable, as it will become the basis of many of your business decisions. A cash flow forecast will enable you to predict requirements for the future and give you time to react should the business perform worse than expected. Think of a yearly cash flow forecast as twelve monthly bank statements; a record of money-in and money-out
each month.

To produce a cash flow forecast think about the seasonality or peaks and troughs in your trading. No business has the same income and costs every month. Think also about the relationship between sales and costs – if you’re a café, what proportion of your costs relate to ingredients? What are your expectations of customer spending and what assumptions underpin such figures? How do you understand the effect of trading changes on future cash needs?

Cash flow forecasting will help you identify actions that are necessary. What about customers who delay payments to you, how will that change the future?
Businesses that have reliable management information, such as accurate cash flow forecasting, perform and survive better than those that don’t. Finally, don’t ignore what the cash flow forecast tells you – if you’re in doubt, seek advice.

At Business Support York & North Yorkshire we have 30 years’ experience of helping businesses control their finances, and run courses on a wide range of business topics. Get in touch and see how we can help you – 01904 699590.

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