Managing Cashflow for Small Businesses
It doesn’t matter what type of business you run, or what industry you are in, cashflow is always a key metric to measure.
What exactly is cashflow?
Cashflow is exactly what it says - it’s the flow of cash in to and out of the business. That’s not just the hard cash you can hold, but also the cash in your bank account too.
Given the situation with Covid-19, cashflow can be tough for some businesses as they struggle to battle the on-going changes and aftermath of the lockdown. Some businesses, such as those producing PPE, may have seen a boost.
Either way, you need to be aware of your cashflow situation and how it affects your business.
Just like the weather forecast helps you decide what to do if it rains, a cashflow forecast can help prepare you for the potential upcoming situation.
For example, if you run a seasonal business such as an ice cream stall at a tourist hotspot, you may have forecasted a boost in sales for the summer, and a slump in the winter. That could be normal for your business.
But what you need to consider is you may still have costs during the winter with little, or no income.
Forecasting ahead for this can help you juggle things a bit better.
Hope for the best, prepare for the worst
Unfortunately, life doesn’t always play out the way you had hoped. This time last year, no one could have predicted that the country would be in lockdown.
It’s always good to have a few cashflow forecasts to be prepared for different scenarios. Sticking with the ice cream stand example, you could think about:
- A best case scenario - what happens if everyone decides to holiday in the UK rather than go abroad?
- A worst case scenario - what happens if no one, or very few people, can come to your ice cream stand?
- Middle of the road - what happens if things tick along with your bills paid, but no growth?
Consider other scenarios too - what happens if a new competitor starts up in your area? What happens if a high traffic high street store closes?
Refer back to your forecasts
Making the forecasts is all well and good, but you need to continually compare where you are now, with where you wanted to be.
Doing this on a regular basis will help you manage your cashflow better and prepare you for the next stages in your business.
If it’s one thing many of us want, it’s enough money to live comfortably. But how realistic is this for your business?
Are your predictions realistic? Are they achievable?
Try not to be too optimistic or pessimistic as this can lead to masking of potential issues. If you’re inflating figures, it could hide an issue of a rent increase, or decreased trade, for example.
Food for thought
Remember the saying - “Failure to plan, is planning to fail”.
The more you can plan for potential issues can be a great help should they ever happen.