There’s no doubt about it, effective cash flow planning can be something of an art form to master. But it is crucial to get good at it to ensure the financial decisions you are making are the right ones.

There’s no doubt about it, effective cash flow planning can be something of an art form to master. Not to put you off, of course, but many potentially profitable businesses have struggled – or even failed – due to poor cash flow management. That’s why it’s important to create a healthy prediction of your cash flow, and to ensure the financial decisions you are making are the right ones.

But before we begin, what actually is cash flow planning? Well, simply put, it is the process of looking at your current financial situation and planning ahead for the future. We liken it to a financial Sat-Nav. Not only will you understand where you are and where you want to go, but it will highlight all of your options and help you with any potential roadblocks along the way.

So here you are. You have your small or medium enterprise, which may be a brand-new venture, or something you’ve been trying to grow and progress over the years and have somewhat fallen short in the cash flow planning department (easily done – don’t worry!) and you may be seeking some guidance on how to hit the nail on the head. Well, ask and you shall receive!

Below is a list of simple, non-business jargon-y ways that will aid you in creating a solid cash flow plan for your business and will help get you firmly on track.

1. Set Ongoing Goals. Visualise where you would like to be, financially, and set your goals to be a healthy balance between ambitious and realistic. And always think ahead: the next quarter, the next six months, the next year, etc., and tailor your goals with this in mind. These are known as ‘stretch goals’ (targets that demand continual performance improvements).
2. Don’t Fear the ‘C Word’ – ‘cash’, that is. Remember the key component of your cash flow plan is the cash. Your cash flow budget should only include cash-in and cash-out. That’s all. It is exclusively the incomings and outgoings of cash movement within your business.
3. Risk Assessment. Late payments from clients can be especially difficult for SMEs to recover from, and in turn, can create a cash flow crisis. The trick to navigating this “is to determine the level of risk on payments you can take as a business. If the answer is ‘no risk at all’ then payment in advance is the solution. This can restrict your market somewhat, especially in the B2B world where companies often expect to pay on account. Early payment discounts might be attractive to some businesses where profit is the driver, and will help you to collect your cash faster, but extended terms may still be more favourable to companies for whom cash generation is key.”
4. Look into Cash Hubs. One important aspect of cash flow management is the discipline of paying yourself a set amount to cover your day-to-day living expenses. By using a central cash hub, you can set your living expenses to be transferred into a transactional account, and your bills will be automatically paid. Meanwhile, the remainder of your salary accumulates in the cash hub and your income will start earning interest. Win-win!
5. Budgeting. Perhaps a no-brainer point, but your budget should centre around your financial position and all of your predicted expenses. Having a budget written down in front of you is a strong way to visualise where percentages of your money will be going, and in turn, may help you prioritise (or reprioritise) spending.
6. TALK! Running a business, particularly if you’re a newbie to the entrepreneur or solopreneur world, can be an overwhelming and sometimes lonely process. But the good news is you’re absolutely not alone! According to FSB, there were 5.9 million small businesses at the start of 2020, and compared with the previous year, the private sector business population increased 1.9% (+113,000 businesses). Reach out and talk to other SME owners – they will provide you with many pearls of wisdom from their own experiences with cash flow planning. The best advice comes from people who’ve been in your position, right?!
7. Consider Some Training. There are a lot of courses, resources, and advice for freelancers, entrepreneurs, and new businesses in and around the Gloucestershire area, with the simple goal of making it easy to get the right support for you and your business. You will find that some of it is even free advice!