Understanding Your Cash Flow Position

If you are having cash flow issues, it is essential that you know the current position of your business finances. Be honest with yourself and make sure you know if or when your business needs help.

To do this you need to create your cash flow forecast, you need to make sure you know what cash is coming in and what payments need to be processed, this can be constructed in a simple excel spreadsheet.

Tips that can assist in preparing an accurate cash flow forecast:

  • Call all your current clients/customers and speak about their current situation and find out when the funds will be received. Don’t hold back from entering into a payment plan with them; this will give you a clearer picture of your cash flow.
  • Hold off on larger payments that are not yet due.
  • Assume a reduction in your revenue; you must be realistic. If you know that your business will be impacted over time, adjust your revenue to reflect this in the cash flow.
  • Eliminate discretionary spending. What can wait!!
  • Employee bonuses, if there are bonuses due and the employees are depending on them, you should pay them if possible. If you can hold off on paying them for 60 days, then do so.
  • If there are any tax bills requiring to be paid, speak with the tax office or your Accountant about a payment plan.
  • Be transparent with your employees.

Having a rolling cash flow forecast and updating it weekly, will help you make sure that you are staying on top of any issues that may come to a head.

Once you have listed all known transactions, you will then need to stress-test the scenarios, for example what will happen if your top customer can no longer pay their account?

Questions you should ask yourself – be truthful

  • Do I know where my business is at financially?
  • Are we insolvent already?
  • Have I spoken to my suppliers and customers and do I have a clear understanding of where they currently stand?
  • Have I spoken to the ATO?
  • Do I need help? If so, make sure they are qualified.

Many cash flow problems are related to “working capital cycles” and the timing of cash inflows vs outflows.  For example, the business pays its staff weekly and suppliers on 14-day terms, but offer its customers 30 day terms.  Therefore, the business needs to fund the gap.  A part-time CFO will explain your own working capital cycles and present a solution to improve your cash position.

The CFO Centre has been assisting SME’s over 20 years, offering highly experienced Chief Financial Officers on a flexible, part-time basis. As CFO’s we are qualified Accountant’s with the added benefit of extensive commercial experience across multiple sectors, so we know what to look for and how to respond.

You can learn more about How It Works here, or give us a call on 1300 447 740.


Photo by Towfiqu barbhuiya on Unsplash

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