For many small businesses, the difference between being successful and having to shut their doors is whether or not they have good cash flow. While profit is the amount of money a company gets from sales once expenses have been deducted, it isn’t the be-all and end-all – in fact, a company can be in profit and still have poor cash flow.
Cash flow is the money coming in and out of the business, and it’s all about timing. You might get paid for a job or a product but if that payment doesn’t come in until the end of the month and your bills are going out before then, that’s not good news. Good cash flow means you always have enough money to cover your outgoings, and this is where start-up businesses can fall down.
So how can a business plan help you to manage your cash flow? One thing you could add to the financial section of your business plan is a cash flow chart. This is a visual representation of the money going in and out of your business, giving you a simple overview of your incomings and outgoings, and also helping you to decide if you need to borrow money.
Of course, you aren’t going to know everything about your cash flow. You might know about your regular bills and expenses, but you may also have to pay unexpected costs on occasion. And it won’t necessarily be easy to predict what money you will have coming in and when – things like dry spells in terms of sales, as well as late invoices, have the potential to throw you off course.
To mitigate this, factor some backup plans into your business plan, or at least consider your options. Could you build up a reserve of capital to dip into when you need to, and how would you go about adding to this? One option is to take out a company credit card that offers cashback. Or in the case of late invoices, you might consider borrowing the money in advance using an invoice financing solution. This would help you to keep a healthy cash flow without having to wait for customers to pay your invoices.
If you’re in the midst of writing your business plan, use this as an opportunity to consider the risks to your cash flow and how you will mitigate these risks. What factors might affect your particular business?
If you would like any help with writing a business plan to help you manage your cash flow and make your business a success, get in touch with cbm using the form on the right or call 01604 420 420.