Category: Cash Flow Management

The way in which rapid growth firms deal with potential cash flow shortfalls is to plan ahead of time and prepare cash flow forecasts and business plans. Additionally, it’s always useful to learn from others mistakes: For example making an informed decision between bank finance vs venture capital money; renting and not buying business premises, whilst looking at the scale of premises expansion with care; watch out for fads or trends; invest any excess cash wisely; plus to keep on innovating to stay ahead of the competition.

The best way to anticipate cash shortages and to deal with them quickly is to have a good accounting and management reporting system in place. A good accounting and management reporting system should help you to focus on key performance indicators like cash at bank and in hand; Customer debts or trade debtor days; Time taken to invoice customers; Inventory or stock turnover ratios; Gross profit margins; Net profit margins; and Supplier payment days.

How you deal with a cash flow shortage is to first prepare a cash flow forecast and an updated business plan. This will help you to plan your way out of the cash crisis and will be needed for the bank if you require bank finance to resolve the cash shortage. Other options include renegotiating supplier payments terms, accelerating customer receivables, reducing your overheads and managing your inventory or stock levels more efficiently.

Having had a significant business with a short-term cash flow crisis myself, I understand fully how this can impact on its competitive strategy. So let”s take a look at how a short-term cash flow crisis impact a firms competitive strategy. All businesses need cash to thrive, but when you take the cash away, it becomes […]

The problems a firm could face if its cash flow forecast proved unreliable may simply be the same if the forecasts were not prepared in the first place. However, at least by preparing cash flow forecasts, and especially if you include a worst-case scenario, you should be prepared for any downside of the base-line projections for your business. The effects of cash flow problems for a business where the forecasts are unreliable could lead to real cash flow difficulties for the business, unless your firm is able to secure additional funding from the bank or other external funding sources.