Most business that fail do so because they have financial problems – and much of this is due to poor cash flow. This means that it’s vital for a new business to stay on top of their financial health at all times, so that if there are problems on the way, you can plan how you will survive them. Here are our top three tips for staying on top of the finances.
1. Do regular cashflow forecasts
Cashflow forecasting allows you to predict when the money will come into your business, and so see what the peaks and troughs are. It’s a vital tool for anyone wanting to give their business a chance of success, as without it, it will be hard to get through the inevitable times when work is slow.
The forecast is usually done for a quarter or year in advance, divided into weeks or months – pick a period that works with your fixed costs like premises rental. Put in your estimated incomings and outgoings, along with an estimate of your opening and closing bank balance for each period.
The hardest part is estimating income. For a new company, you’re going to be estimating based on your knowledge of the market, the number of customers you think you will gain, and how many sales you can actually support – if you’ve only manufactured 1,000 of your new widgets, putting 2,000 sales into your initial estimate isn’t realistic.
2. Keep your business plan up to date
Your business plan is a vital tool not only for reminding yourself of the principles of your business, but also for getting sources of finance should need to. Going to your bank manager for a loan with a business plan that is six months out of date won’t be impressive – so sit down once a month and compare the financial predictions you made in your business plan with reality, and update accordingly.
For more on how to keep your business plan up to date, click here.
3. Keep talking to your bank
It’s in the interests of your bank that your business survives, so talking to their small business advisor regularly can be a good option. This is particularly true if you’re planning to look to them for finance – the more they know about your business and its health, the more likely they are to be able to make a realistic assessment of how they can help.
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