If you’ve already created your business plan, then you’re already well aware of the details required for the financials section. And while these kinds of details can certainly get you the funding you need for your business, have you considered what will happen should that funding run out? Although this eventuality may be the furthest from your mind, cash is the lifeblood of your business. Without it, even the most successful venture can be placed at very real risk. But the potential for business loss can be dramatically reduced, if not completely eliminated with realistic and forward cash flow planning.
Look One Year Ahead
Smart cash flow planning doesn’t involve planning for the spending of every penny. Rather, it’s about dividing the next year into individual weeks and creating a cash flow plan for each one. Creating these kinds of plans involves being able to realistically assess the income you’ll be receiving and when you’ll be receiving it as well as your major weekly expenses. These expenses include things like any fees, utilities, rent for your premises and any raw materials or stock you will need to purchase.
These weekly plans should be based on a scenario where what you earn falls at the low end of your sales estimates. Then, your costs will need to be closely monitored to ensure you’re adhering to your budget. In this part of the plan, there is no room for uncertainty. Only contracts that you are sure you’ll win should be included in your plan, as these will be responsible for your business’s survival.
If your Business Is Non-Cash
There are many non-cash businesses out there. If yours is one of them, you will need to do all you can to ensure that your customer can pay for your products or services. Offering incentives to encourage payment, such as discounts or club cards can keep money coming in. Convenience is also a good way to ensure payments. A direct debit is now a ubiquitous form of payment, and as such, will likely be expected by many of your customers.
Keeping Customers Coming Back
Your cash flow plan also needs to consider what keeps customers coming back. One way to achieve a high rate of customer retention is to ensure that you always deliver your products or services as promptly and consistently as possible. Aside from this, addressing any issues personally and thoroughly will hold much value for those who purchase from you.
Keeping Costs Down
Another way to relieve the pressure of hard financial times is to keep any fixed overhead costs as low as possible. This is especially important if you have just started your business. Keeping these costs low will leave more free cash when you really need it. Also, without the worry of high overhead costs, you can have more time to nurture customer relationships.
Other Ways to Save
Preparing for times of slower cash flow should also include cutting certain spending. During tough financial times, the only expenses you should list on your weekly cash flow sheets are those that are essential to the running of your business. Eliminate discretionary spending and focus on how to achieve the desired result without spending as much money.
Keep Paying Taxes
When times get tough, one of the first things that you may consider putting to the side is your tax payments. But doing this can result in many hardships down the road, including additional penalties on outstanding amounts, bank account freezes and the possible seizure of assets. Instead, keep HMRC informed about the changes to your business; being honest about your situation can actually net you many benefits, including payment arrangements that can help you avoid the consequences of non-payment.