Show me the Cash-Flow GrinMarch 27, 2017 | Markus Schwarzer


In my last post these guys looked really depressed. Now they have their grin back. Why? They completed their first ever Cash-Flow Forecast! And guess what it does not look bad at all.

You might ask: Why are you bothering me with this boring subject?  My answer: The majority of SME’s do not forecast their Cash-Flow.

“82% of businesses fail due to poor cash flow management.”
J Hagen of US Bank

Poor or no Cash-Flow Forecasting remains the no.1 Killer.

Fact is Cash-Flow is the lifeblood of any business — the blood that keeps the business heart pumping.

Positive Cash-Flow does not arrive by chance.

  • You have to work at it.
  • Analyse and control the inflow and outflow of Cash.
  • Monitor Cash-Flow on a monthly basis (minimum!, ideally daily).
  • Ensure you have enough cash to cover your obligations in the coming months.

I always recommend to compile a Cash-Flow Forecast. Is this tricky to do?  Yes, it can be if one wants it to be meaningful.

The weather, the US Dollar, the share market. Forecasting anything is difficult. Never mind how deep you dig or how much analysis one performs, a significant amount of uncertainty and unpredictability remains.

Nevertheless, it is the best ‘Early Alert’ you can use:

  1. CashIn. Review your Revenue and start making realistic predictions for the next 3 to 12 months:
    • Keep in mind that customers do not pay straight away. Allow for delays.
    • Include seasonal variations.
    • Assume the unexpected, e.g. some customers may not pay at all.
    • Limit the net terms to no more than 15 working days.
    • Offer discounts to customers that pay early – sounds counter intuitive but it works!
  2. CashOut. Review costs and start making realistic predictions for the next 3 to 12 months:
    • Wages are fixed and you can easily predict those even if you increase staff.
    • Negotiate extended terms with your suppliers.
    • Purchase stock/inventory just in time.
  • Keep it simple, tailored to Your needs.
  • Spend quality thinking time on this exercise.
  • It may be the difference between business success or failure. Don’t become part of the 82%!

About the Author
Markus specializes in Cash-Flow improvements for SMEs with particular focus on Manufacturing.


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