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Why should you read this guide?

Any business needs cash to operate. This does not need to be "hard cash" but does need to be liquid funds. If you are running a business you need to be aware of your cash position at all times - this guide will explain how to keep control of your cash.

Background

There are a lot of sayings in business that do actually make a great deal of sense, for example "Turnover is vanity, profit is sanity". More relevant to this subject though is "cash is king". Basically, it does not matter what your turnover is or what your profit is or has been in the past - if you do not have cash in your business you will not be able to operate and your business will close. This guide is not about teaching you accounting methods for cash management although we do look at cash flow forecasts. It is about stressing the importance of always having cash available to meet your requirements.

Many business people avoid the financial elements of their business like the plague, feeling that they are not making money when they are sitting doing book work. If this describes you then you need to stop this immediately. Keeping an eye on the finance of the business is very important (even if you have a bookkeeper fulfilling the day to day elements) as you need to be aware of what is going on.

Cash flow forecast

The purpose of completing a forecast is to allow you to see what needs to be done to make sure that you do not run out of cash. A completed forecast will also show you when you are likely to run out of cash and allow you to make provisions for this. Although they are usually difficult to write, as you may be talking about business events two years down the line, they are a good tool for making you focus on the cash element of the business. Your bank will take great comfort in a cash flow forecast. You may be surprised to know that this is not only because of the numbers but also that it tells them you have made the effort to sit down and work it out.

Do not treat this as a document that needs to be written and then forgotten. It should be constantly monitored and actual figures compared to the forecast on a monthly or weekly basis. By doing this you will gain a true understanding of how cash works within your business.

Sources of cash