Cash Flow – Your Lifeline for Business Survival

Of the multiple causes for business failure, a key contributor is inadequate cash flow.

An analysis of SME or large corporate business survival rates or a walk down any high street will provide more than sufficient evidence of this. This may seem obvious, so why are we so surprised when it happens?

If large corporations can fall foul to this you can appreciate how vulnerable small businesses must be. But let’s take a reality check. How many of us regularly review our business case, a key aspect of which is cash flow prediction. Forecasting and management of cash flow is a fundamental aspect of doing business. As is unfortunately regularly the case, are your cash flow predictions too ambitious?

How much of the content is realistic and have all expenses been comprehensively identified and at least reasonably accurately predicted? Have all outgoing costs been listed and scheduled? Is there a built in contingency for unforeseen events?

Furthermore, research has identified a substantial number of small businesses using credit cards to cover expenses, relying on predicted income to ensure sums owed are paid off every month, avoiding those high interest charges. Then when an invoice is not settled when expected or an unanticipated expense occurs it throws all financial management out of kilter. Where is the backfill? Late payment is one of the highest ranking causes for businesses experiencing financial difficulties. Overdrafts are expensive. So what is the solution? That will depend on individual circumstances. But sufficient forethought should be part of every business strategy ensuring there is adequate contingency funding put aside to overcome those unanticipated financial obstacles.