How to manage and plan your cash-flow?
Managing and planning your cash-flow is vital for success of your business and company. Data even suggests that you can increase reliability of your company for over 120%, if you regularly plan your cash-flow. This basically means that your business is twice more likely to succeed and survive after 5 years, if you plan your cash-flow regularly than if you would not plan your cash-flow at all.
There are three main time related aspects of cash-flow planning, you should address:
- Open items – receivables and liabilities – short-term – 1-2 months
- Projection for next few months – mid-term – 3-6 months
- Strategic plans and investments – long-term – 1 year and more
Open items
Managing and analyzing open items of receivables and liabilities is what most companies understand under cash-flow planning. It is relatively simple to master and should be done by all companies on a weekly level. When companies look at open items, they can easily establish, how much cash they can expect to receive based on invoices they issues and due dates of those invoices. At the same time they can also establish how much they need to pay based on invoices they received and due dates of those invoices. Such approach enables companies to better plan their short-term liquidity – even on a day by day level – and it is done easily with data received from company’s accounting software. Unfortunately, this approach does not enable a company to protect itself from liquidity issues, because open items are relatively fixed and liquidity issues discovered through open items analysis tend to be discovered relatively late. This gives company very little time to secure additional financing, which is the reason, why companies should focus and invest in mid-term cash-flow planning.
Projection for next few months
Planning cash-flow for the next few months is hard for majority of companies and individuals. It is hard because it is relatively complex, it requires special expertise from the companies and it also requires companies to adapt their projections regularly (on a monthly basis). The special expertise such planning requires is connected with the fact, that the company need to project both their performance and their condition (profit and loss statement and balance sheet) for the next few months in order to get appropriate cash-flow projections. Service like SASH reporting can really help companies in this regard, because it generates 3 to 6 months cash-flow projections based on company’s current condition and performance. Such projections give companies great insight into their future cash-flow and they enable them to make better decisions regarding their actual cash-flow forecast in the period. Because the reports and projections companies get with SASH reporting give insight for the next 3-6 months (and not only 1-2 months, which is the case with open items analysis), companies can act before it is too late to securing additional financing, funding etc.
Strategic plans and investments
The company also has to look ahead for the next few years (at least one or two) and plan its cash-flow requirements also for the long-term. Such plans can be made on a yearly (or half-yearly) basis, because their requirements usually do not change significantly during the course of the year. They should be included when thinking about the need for additional financing and they should be a part of company’s review of its business plan in general.
About author:
Darko Butina is experienced executive, who was active in very diverse industries, all the time leading companies ranging in size from zero to half a billion EUR revenues. Darko is founder of SASH reporting, partner at BUDS Consulting and active angel investor.
SASH reporting is like weather station for company’s business – it gives visual and informative information regarding company’s condition and performance and also provides company with insight into its cash-flow requirements for next 3 to 6 months. SASH reporting is a service of BUDS Ltd., consulting company specializing in financial, controlling and management consulting with decades of relevant experiences.
Please find more information about SASH reporting at www.sash-reporting.com.
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