It is estimated that three quarters of all small business failures stem from badly managed cashflow.
Poor cashflow planning can be a killer for many small businesses. If you are having problems with cashflow planning in your small business, here is some basic advice for you to follow.
Remember that profit is not always a good indicator of cashflow. Even if you have a high profit margin on paper, it counts for nothing if you have insufficient cash to pay your bills.
If you are expanding your business, expect to find your cashflow seriously stretched. Growth always costs money and requires a lot of working capital. It can be a double-edged sword because the faster you grow your business, the more capital you will need.
It may sound obvious, but don’t try to calculate cashflow in your head. It is too easy to make mistakes and start including the inventory along with the cash. Until your stock is sold, it is useless to you. Similarly, if you have invoiced other businesses for products or services, you cannot include these until you actually receive payment.