• Know How

    December 2017

4 cash flow commandments

Cash is the lifeblood of any business and maintaining a positive cash flow is crucial to business success. Below are four cash flow commandments to help manage your business’s cash flow.

Commandment 1: Prepare a cash flow forecast

A realistic month-by-month (or week-by-week) cash flow forecast will help you prepare for the future and foresee cash flow issues early. Cash flow forecasts are usually prepared as part of a full three way budget (budgeted profit and loss and balance sheet followed by a cash flow forecast) and will help you understand the ebbs and flows of your business’s cash flow. BDO can help with this.

Commandment 2: Don’t drain the coffers

Establish how much you need as a business owner and stick to this. Don’t let your personal spending hamstring your business’s growth.

Commandment 3: Establish a good relationship with your lenders

Establishing a good relationship with your lenders is an important (and understated) part of cash flow management. Crucial to this is credibility, so when you present your cash flow forecast (prepared under commandment one) ensure they are accurate and realistic. Remember lenders are looking to finance businesses that know how they are going to succeed and have a clear road map to help achieve this.

Commandment 4: Make sure your debt mix is right

If you find you are regularly operating with a bank overdraft and never making it back into the ‘black’, then consider moving this debt to a term loan, secured against the assets of the business. This will create a balance between ‘current’ and ‘non-current’ liabilities, free up working capital and allow your business to take advantage of any opportunities that require readily available cash to pursue.

For assistance with managing your business’s cash flow, contact your local BDO adviser.