On this episode, I want to talk about cash flow, and more specifically, cash flow forecasting. Many businesses that have cash flow challenges face those challenges because they leave things too late. Knowing that you’ve got a cash flow problem next week or the week after is a problem, because what you can do to try and navigate those cash flow challenges is pretty limited. What you want to know is if you have a cash flow problem or a potential cash flow problem in 10 weeks’ time or 13 weeks’ time.
For me, this document that you see here is the one you need. This format is the perfect level of detail for you and your business. The idea behind this is that you are concerned with this front sheet, and all of the detail that needs to feed into all of the different areas I’m going to run you through needs to live somewhere else or on different tabs in this document. If you’ve got this level of detail, then it helps you make good decisions about what you can move to the left or to the right to navigate any short-term cash flow problems.
A word of warning: a cash flow forecast is not a tool for diagnosing why you have cash flow problems. A cash flow forecast just helps you move your money to the left or to the right to get through those little short-term peaks and troughs. If you want to understand why you have cash flow problems, check out my video on cash gap.
Now, back to this document. As you can see, it’s formatted in a very simple and clear way. At the top, you’ve got ‘Cash In’, which will be whatever your invoice forecasting is and whatever your debtor’s target is. Then, that gives you your total cash in – nice and simple. Next up is your ‘Cash Out’, divided into three specific areas: your standing orders and direct debits, which are committed payments, supplier payments, which are probably big, chunky supply payments, and an area for you to detail out all of the specific things that you want to have visibility of on a weekly basis. This gives you your total cash out.
Then, you can see what your bank balance is likely to be at the end of that particular week and what your net change is. I really like this because it helps you understand if the cash position of the business has gotten better or worse.
This format is so good, you’ve got 13 weeks of visibility. In an ideal world, this document would be completed at the same time each week and delivered to you by an agreed deadline. For this episode of “Mind Your Own Business,” I wanted to run you through this document. In the next episode, I’ll talk you through how you should run your weekly cash flow meeting using this document as the centerpiece of that meeting.
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