Setting Up a Solid Cash Flow Plan
Posted on: 28 September 2022
As your business grows, so does the complexity of its financial situation. You can quickly lose sight of what funds are available in a pinch. You should put your company through a dynamic cash flow model evaluation to ensure you know what you have available and how fast it could be used if you needed cash to keep your business going. This is more than a budget review, by the way. This is a chance to set up a solid plan that accounts for likely risks.
Look at National and Local Risks
No matter which company you hire to look at your cash flow, ensure it looks at how the cash flow situation would change in both national and local events. Worldwide pandemics are a lot different from local extended power outages; sudden economic downturns are different from government-caused regulatory changes that affect your field. You need extensive analysis to work through as many scenarios as possible.
Cash Flow Isn't Merely "Available" and "Not Available"
Cash flow is not a one or the other type of situation. It's not that you have cash flow or you don't. You have immediate cash flow that you could access right now, then cash flow from products and accounts that may take a little effort to get but that you could still get rather quickly. Then you have more options that you could turn to if you had to find more and more cash. There are options for credit there, too. You need to get a good sense of what you have available where, and how long it would take to get it and convert it to usable cash. Once you see that, you can work on filling in gaps so that you have a more stable and reliable path to financial solvency.
Look at Business Credit Qualifications
The less debt you have, the better, and if you have no debt, that's wonderful. But you still want the ability to get credit if you need to cover a gap in cash flow because that's a stopgap you can use in an emergency. As you look over your cash availability and the models produced by the consultants you hire, look for areas where you could tighten up operations (within reason; you don't have to fire part of your workforce or reduce product or service quality, but you should look at the little things, like finding unnecessary redundancies in operations). Look for better vehicles for stashing cash savings and ways to quickly improve company profits, if your money situation is generally tight. You want to use the information to make your company more attractive to lenders should you ever need to use that option.
The world can change unexpectedly, as everyone found out in 2020. Your company should undergo dynamic cash flow modelling every few years at a minimum to ensure that your plans are still usable and relevant and that your cash flow situation is still on the right course.
To learn more, contact a dynamic cash flow modelling consulting service in your area.
Share