Everyone has a plan until…
Many people have nurtured plans to do something they love, run their own business, be their own boss. However, once you get going you quickly come to realise even the best laid plans can go in a slightly different direction to how you first imagined.
As Mike Tyson memorably said, ‘everyone has a plan until they are punched in the mouth.’ And that is what life in business is like. Everything can seem to be running smoothly and then boom, something unexpected knocks you sideways. Turns out that everyone in business has a boss and that boss is called cashflow. If you manage your boss successfully, you’ll be in a great position to manage the unsuspected events that can floor and knock out many businesses.
There is another famous adage when it comes to planning: expect the best, but plan for the worst. This is absolutely the right thing to do when it comes to managing your cashflow. It would be nice to think that each of your clients or customers will endeavour to ensure that you get paid on time. It would be wonderful to think your creditors will be perfectly understanding and will sit back and relax when their payments become due. The fact is your business operates in the real world and you will find your cash position under stress every now and again. Seldom do cashflow forecast spreadsheets turn out to be 100% accurate.
At times it is almost impossible to predict which of your customers will drag their feet when it comes to settling their account. Or worse still, not pay at all! Credit checking potential clients or customers may go some way in ensuring that your clients or customers are at least credit worthy at the point of entering an agreement. On the debit side however, tax, rent or utility bill due dates are fixed. The risks arising from not paying those bills are significant.
Therefore, having a good understanding of the financial issues you may face and potential solutions open to a business gives an entrepreneur the best chance of seeing his or her business succeed.
Having a contingency plan
Unbridled confidence in future finances and fortunes is admirable, but not so clever when you are a micro sized business, with moderate turnover. Therefore, you have an obligation to yourself to be realistic in forecasting income and expenditure.
According to the Federation of Small Business somewhere in the region of 50,000 businesses, mostly viable businesses, are forced to close every year as the result of late payment causing them to run out of the cash required to continue trading.
In the current business environment, it has never been more important for SMEs to manage their cash flow more effectively. One way to do this is to develop more than one cashflow forecast. Challenge the assumptions that make up your base forecast. Develop an upside forecast if things turn out better than expected. When you see the positive impact that could have on your business, it will act as a spur to get the cash in. However, also develop a downside “what if” forecast. This will identify potential pain points. They you can set about mitigating them.
Never mind growing your business, sometimes in order to simply survive, there may be need of a cash injection to see you through difficult times, often through no fault of your own. This is why it’s always important have a contingency plan in order to manage those times when managing cash flow becomes difficult. This can literally be the difference between staying afloat or seeing your dream business ceasing to operate due to the life blood of its cashflow running out.
It pays to know what sources of finance are available to you. Talking to your accountant or financial adviser will help to give you an understanding of your options.
Newable Cashflow Business Loans
If you have need of short-term flexible finance, this is where we may be able to help. Newable Cashflow Business Loans are available to eligible limited companies that have been trading for 12 months or more:
- Flexible facilities of up to £25,000.
- Competitive interest rates.
- Cash can be requested anytime in full or in parts.
- Quick decisions.
- No arrangement fees.
- Can be repaid over 90 or 180 days.
- Repayments made daily via fixed direct debits.