Holding cash is much like trying to hold sand. It keeps pouring through your fingers and the tighter you try to hold it the less you manage to keep. However, when it comes to cash if you’re alert to ways that you manage the flow of it in your business then you can certainly improve the situation.
A fundamental strategy that will help you to do this is to…
Measure Your Cash Needs
If you’re going to improve cashflow then you need to know how cash is flowing through your business. The only way you can do this is to measure it.
Generally a simple spreadsheet is all that’s needed.
Across the top set out a column for each week. Obviously the further ahead in time you go then the more difficult it is to reliably predict what will happen. So I’d recommend doing detailed measuring on no more than the next 12 weeks.
Then on the left hand side, list all the sources you expect to receive cash from. Place the amounts in the column underneath the week you expect to receive the money. Be cautious rather than optimistic when you assess timing.
Underneath this, list all the suppliers, staff and anyone else you need to make a payment to. Put the amount you expect to pay underneath the week when you expect to pay it.
Now you can set up totals for each week of money coming in and money going out. By taking one from the other you’ll be able to see where any stress points are likely to occur.
Having Measured, Now You Can Plan
Forewarned is forearmed as they say. So perhaps you can organise a temporary increase in your overdraft facility. Perhaps you can slip a payment into the following week. Or maybe you can delay expenditure if it’s not vitally needed.
Update your spreadsheet at least once a week. As you do this regularly you’ll become much better at predicting your cash inflows and outflows accurately.
And you’ll give yourself the time you need to successfully deal with potential problems before they become actual problems.