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Are you struggling with cash flow planning?

by Alexandra Pasareanu

26 May 2022

Cash flow planning is essential for any business. If you're struggling to maintain a healthy cash flow getting access to regular cash flow statements can help.

Maintaining healthy cash flow finance is essential for any business and can mean the difference between success and failure. An important tool used to help businesses with cash flow planning is a cash flow statement. This report tracks the cash flow for an organisation and, alongside the income statement and balance sheet, it helps to determine a company’s performance. The reason for considering a cash flow statement may vary from a simple nagging doubt to a critical business need. If it is the latter and your business is struggling with cash flow planning, things could become terminal.

In this short insight, I will cover some of the key signs which indicate that your organisation would benefit from a cash flow statement and liquidity analysis.


Critical signs which indicate you need a regular cash flow statement


1. Overdraft facility

It is common for most businesses to have a time delay between expenditure and income. But if you are making interest payments on overdrafts, there is an immediate need to better manage your outgoing spend. A cash flow statement gives you a wide visibility of your cash to make the appropriate decisions and to plan in advance.


2. Incomplete management account reporting

How many times you hear that some organisations have collapsed or been bought out at very low rates due to poor decisions following a weak or incomplete management accounts? If you have not got strong monthly reporting to be able to plan ahead and have a thorough understanding of your business, it won’t be very long before the organisation fails. A robust and complete management accounts report should include a cash flow projection.


3. Thinking of cost reduction strategy

Next up: the cost reduction strategy. Finance people often play a key role at this point. When an organisation has liquidity issues the first thing finance people suggest is “cost reduction”. Is this the correct approach for your organisation? Although this approach offers an immediate form of payment cutting, it is frequently a knee-jerk reaction that can lead to the loss of important projects, customers or talent further down the line. A cost reduction strategy can be a temporally solution, but not the answer for a business which aims to progress and grow.


4. Uncertainties around future plans and decisions

Without a cash flow statement, you’ll never know the definite amount of funds you have available at any given moment. This lack of information reduces the certainty and confidence you have for your future business plans. You may “feel” that your company is in a good situation, but a cash flow report may reveal that there isn’t much money coming into the company this month or quarter. Whatever the reason, with an updated cash flow statement, you’ll know not to make any significant decisions at certain moments during the year.


5. Losing business relationships

If you’re having cash flow problems, then you may not have the funds available to pay your suppliers or employees. This situation can harm the business relationship you have with them and damage your overall reputation. It’s important you do advanced cash flow planning so that you don’t face multiple payments at the same time without the funds to deal with them.


6. Not sure of 30-60-90 days customer credit

Giving a credit for too long can affect your liquidity and the ability to pay your bills. But how do you know what is too long for your organisation? Are you just following the “standards” or the “market trends” or do you have a proper understanding of the impact of 30-60-90 days credit? A cash flow statement and liquidity analysis provide a clear picture of your current and incoming liquidity. With access to this information, you will know exactly how long you can wait for your customer to pay you and therefore give the correct credit length.


Finding a cash flow planning solution

If your business is showing critical cash flow risk signs and you are in need of a cash flow statement and liquidity analysis, don’t panic. Our cash flow services can help you establish a clear cash flow management plan to enable you to set clear payment terms up front. Contact our cash flow specialists today!

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