Running aground with every tide

Friday, August 11th, 2017

Three recent events prompt me to return to the topic of cash flow forecasting.

Firstly, a client who is perpetually short of cash in his business. He has had some bad payers and a couple of bad debts but we have sorted his credit control processes out now. Last time we met he was still worried about people who owed him money. I asked himm what debtors were running at and we worked it out at around thirty days. As his terms are mainly thirty days that didn’t seem too bad. In the same meeting he was telling me about his new Porsche and I started to understand his problem. He was taking so much cash out of the business that it was starved of working capital. A business needs sufficient water under its keel to prevent it running aground with every tide.

Another client runs a rapidly-growing building business. When I suggested that he ought to be reviewing his cash flow forecast with his bookkeeper at least weekly he couldn’t understand why this was necessary as “…we have plenty of money in the bank…I never understood why people are so worried about cash flow”. I explained to him the way growth sucks cash out of a business and how quickly things can go wrong. I’m relieved to say that he now has his cash flow forecasting in place and the regular review is starting to open his eyes to the risks and possibilities of managing cash.

The third event was a LinkedIn post by someone complaining about the overdraft rate his bank was charging his business. Apparently “…compounded for a year it is 68%…”. A raft of sympathetic, bank-bashing comments followed his post. It didn’t seem to occur to the originator or the posters that an overdraft is a short-term arrangement not long-term funding, and the compounding cost a punishment for poor planning and cash management.

If you’d like to learn more about cash forecasting and other elements of a systemised approach to running your business then perhaps you should register for this event.

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