PlanWare - Home: business, plan, software, free, financial, model, budget, forecast, plan, planner, planning, projection, template, statement, analysis, business plan, business plan software, business planning, business planner, financial projections, financial planning, cash flow, cashflow, strategy, strategic
Software & free templates for business plans, financial projections, cashflow forecasting plus free business plan tools, models, samples, guides & planning papers
Financial
Projection
Software
Cashflow
Forecasting
Software
Business
Plan
Software
Marketing
Plan
Software
Strategic
Planning
Software
Business
Plan
Guide
Business
Planning
Freeware
Online
Planning
Tools
Business
Planning
Papers
Other
Items

PlanWare's Blog

Blog Home  Bookmark and Share

November 2009 Archives

Improving Cash Flow

| No Comments | No TrackBacks

Cash flow is the life blood of every business and lack of cash is a much more significant cause of business failure than trading losses. The management and preservation of cash is a priority task which must be performed day in and day out in every business. This task is so routine that its importance is often overlooked.

Here are some ways to improve cash flow:

  • Sales - Become more selective when granting credit.
  • Costs & Systems - Improve systems for billing and collection.
  • Credit Management - Generate regular reports on receivable ratios and aging.
  • Purchasing - Make prompt payments only when worthwhile discounts apply.
  • Inventory - Sell off or return obsolete/excess inventory.
  • Investment - Use leasing etc. to gain access to the use of productive assets.
  • Financing - Use factoring or discounting to accelerate receipts from sales.

For a list of over 30 ways of improving cash flow, visit the Checklist for Improving Cash Flow.

Central to any program to improve cash flow is an accounting system to handle inventory, invoicing, receivables and payables. Allied to this is the need for frequently-updated cash flow projections to provide early warnings of possible liquidity problems and a foundation for improvement plans.

For more on this, see the paper on Making Cash Flow Forecasts and download and try our Cashflow Plan software tools for making rolling 12-month forecasts and creating cashflow improvement plans.

When preparing financial projections for a business plan, you may need to consider raising finance from venture capitalists, business angels and/or banks.

Here are some tips. They assume you are using a fully-integrated financial planning tool, like our Exl-Plan range, to prepare projected income statements, cashflows and balance sheets covering a time horizon of 3-5 years or so.

  1. Use "most likely" (highly probable) assumptions to generate initial projections but exclude, for time being, any assumptions about external funding. When the financial model runs without this funding, it should automatically build up a substantial overdraft (cash shortfall) based on projected net cash outflows.
  2. Review the trend in the overdraft and identify its peak month/quarter and value.
  3. Review the desired mix of external funding - overdraft, grants, loans and equity - and inject funding amounting to the peak overdraft into the model.
  4. Rerun the model and check that key ratios - especially debt/equity and quick ratio - look sensible for all months/years. If needs be, adjust the mix of funding to improve these ratios. For example, if the debt/equity ratio is 100%, consider reducing the debt level and increasing the equity content.
  5. Take note of the timing and amounts of proposed external funding.
  6. Undertake sensitivity analyses by running the model with revised projections for sales volumes/prices, costs and/or overheads in order to identify a realistic "worst" case.
  7. Repeat points 2-5 to determine "worst" case funding.
  8. If desired, raise the projections with altered sales volumes/prices, costs and/or overheads to see the "best" case funding and help sell the business's potential to investors.

Base funding needs on the "most likely" projections but take account of higher requirements suggested by the "worst" case. - it may be prudent to seek too much money rather than too little!

For more guidance:

About this Archive

This page is an archive of entries from November 2009 listed from newest to oldest.

October 2009 is the previous archive.

December 2009 is the next archive.

Find recent content on the main index or look in the archives to find all content.

Top of Page

Financial
Projection
Software
Cashflow
Forecasting
Software
Business
Plan
Software
Marketing
Plan
Software
Strategic
Planning
Software
Business
Plan
Guide
Business
Planning
Freeware
Online
Planning
Tools
Business
Planning
Papers
Other
Items