How cash flow forecasts can help you

Managing cash flow is a vital part of running a successful business. Some business owners think managing cash flow simply means keeping track of how much money enters and leaves their business, but there’s actually more that goes into it.

Cash flow forecasting, for example, is an incredibly valuable tool that helps you anticipate cash flow issues, plan for days when your cash flow is limited, and show the bank that you are prepared.

It’s an important process that you shouldn’t ignore. Here are ways cash flow forecasts help entrepreneurs.

They help identify cash flow issues before they happen

Most businesses go through slow periods. Sometimes, those periods are obvious. A seasonal business, for example, will have decreased income during the off-season than during the on-season. There can be less obvious peaks and valleys in your income, though, that you have to prepare for.

Your cash flow forecast can help you monitor your day-to-day cash flow and anticipate when times will be slow before they hit. By anticipating when cash coming into your business might be light—or when you might have to spend more than you’re accustomed to—you can avoid a cash crisis.

By examining your cash flow over the previous years and forecasting your future cash flow, you can better anticipate financial cycles and how they affect your bottom line.

They help plan for tougher times

It’s tempting to spend money when you have a lot coming in. Your business may need new equipment or maybe you want to give all your employees a raise or a bonus. That’s a great thing to do, but it’s only helpful if it doesn’t put your business in jeopardy financially.

Cash flow forecasting is a great reminder about how your bank accounts will look during tougher times, so you can make important decisions about when to spend your money and when to save it.

If you know a slow period is coming up, it might be better to save money for now and give out smaller bonuses. If you can anticipate your slow period, you can plan major purchases and bill payments around it, to stretch your cash further.

At least by conducting cash flow forecasts you’re less likely to be surprised by a sudden cash flow crisis.

They show banks you can plan ahead

Banks prefer to give their money to entrepreneurs who show they are capable of planning ahead. Financial institutions prefer business owners who are realistic with their financial projections and show they have a means of addressing cash flow issues.

Final thoughts

Forecasting your cash flow gives you a clearer picture overall about your business and how the money moves into and out of it. It provides important insight into your company’s financial health.

If you haven’t conducted cash flow forecasting so far, it’s a good idea to get started now so you have a better understanding of your company’s finances and so you can prepare for the future.

Sandra Price www.tradiebookkeepingsolutions.com.au Facebook : Tradie Bookkeeping Solutions

How To Accept Settlement Offers

I recently had two clients (let’s call them Jason and Peter) who were both offered a settlement deal by their debtors. Contractors Debt Recovery had made adjudication applications on behalf of both of them, and the offers had been received once the debtors had read the case against them. It was clear that they could not produce any valid reasons not to pay my clients.

One client received a letter from the debtor’s solicitor offering full payment within 14 days on the condition that the application be withdrawn. The other client received a phone message from his debtor offering to ‘work it out’.

I discussed the matter with both clients.

Jason wanted me to withdraw the adjudication application as he felt he was sure he would get his money within the 14 days. I was not so confident, but as the letter came from a solicitor it held a bit more water. So Jason agreed to the deal.

Peter asked me if he should call his debtor back, but he really didn’t feel like talking to him. I advised Peter to fax his debtor a request to put anything he had to say in writing. He did so, and sure enough Peter also got a written offer to pay the whole amount on the condition that the application be withdrawn. I advised Peter to prepare a letter outlining the conditions under which he would accept the offer, which of course included a ‘no payment, no withdrawal’ rule.

Peter got his money. Jason is still waiting, and faces starting the payment claim process from scratch, or commencing winding up the debtor.

Why the different outcomes? The difference lies in control and power. Peter maintained his position of power and controlled the manner in which he accepted the offer. Jason relinquished his power, and didn’t control the process.

When you get an offer from a debtor to pay, you need to follow these 6 steps.

WHY – should you accept the offer? Are there other pressing reasons why you would entertain an offer? Perhaps there are other business or personal reasons that are best served if you settle quickly for as much as you can get. This is really for you to decide.

If the offer is an insult, then you will probably want to keep the pressure on. As a general rule, if you’re not being offered at least 70% of what you are owed, it’s a joke of an offer and I’d keep fighting. Your debtor clearly wants to avoid a fight if he can, which is why he’s made an offer in the first place, so keep going. But this is open to each individual circumstance.