Have you got a profit plan for the next 12 months or are you planning on winging it?

Cash is the life blood of any business and good cash flow requires careful planning. With predictions of a tough business conditions likely to continue for the next 12 -24 months it is essential to start planning for your business success and survival. Even if your business isn’t directly affected by the down turn its likely your customers will. Also many of your suppliers maybe tightening up on their credit terms so now is the time to get on the front foot.

Without cash to keep things running you'll quickly go out of business. If cash flow isn't managed correctly, a business that's undergoing growth is just as likely to encounter cash flow problems as a struggling enterprise. A surge in sales will usually require an increase in the money required for working capital (materials, equipment, labour), and if customers take too long to pay, the business could be in serious trouble.

The cash flow forecast (or cash budget) is the main financial forecast a small business will prepare to measure how much cash is needed to operate the business and when it is needed. It adds the dimension of time to the annual sales and expenses forecasts so that you can predict the future cash needs of your business on a monthly basis and check whether you will be able to pay your bills. A cash flow forecast measures liquidity, the ability of the business to meet its commitments as they fall due.

A cash flow forecast will show you if, and when, you will run out of cash essential to run your business. Prior warning allows you to work out solutions to anticipated temporary cash shortfalls or arrange short-term investments for temporary cash flow surpluses.

Some tips for cash flow management
1) Prepare regular cash flow forecasts. If your business is having cash flow difficulties, you should be preparing such forecasts and updating on a regular basis. They will highlight when and how large any cash shortfalls may arise so you can begin to make arrangements now.
2) Keep and eye on your entire cash cycle. If you are in difficult cash position try to sell products and services which consume less resources and can be turned into cash quicker. It might be a good time  to review stock levels and clear some excess or obsolete stock
3) Deal with problem debtors quickly. Make sure you keep a close eye on your aged debtors. Chase outstanding amounts early and follow up with various forms of communication.
4) Make full use of your terms of trade as this amounts to an interest free loan. Don’t pay your suppliers too early but also don’t go outside the agreed payment terms. Being seen
5) Don’t let personal drawings get out of hand. The owners should take a modest but regular wage or drawing, and leave any excess cash in the business. Keep any stock withdrawals to minimum