Cash is the lifeblood of every business and no business can survive for long without it. As Mr. Micawber in Charles Dickens' novel, David Copperfield, so succinctly put it:
"Annual income twenty pounds, annual expenditure nineteen pounds, nineteen shillings and sixpence, result happiness. Annual income twenty pounds, annual expenditure twenty pounds and sixpence, result misery."
This simple advice is as relevant today as it was in Dickens’ time and perhaps even more so in the current economic climate. We have had the credit crunch, the euro-zone crisis, falling consumer demand, a lack of business confidence and investment, severe government cutbacks, declining prospects for export-led growth, rising unemployment and a paucity of business lending as the banks struggle to meet tighter capital reserve requirements.
Never before has it been so important to plan for and manage the cash flow of your business and to avoid running out of cash, and yet large numbers of businesses, big and small, do not have any form of cash management system in place. A shortage of cash is the number one reason for business failure and can affect even successful profitable businesses, which grow too quickly.
So just how prepared are you? Do you know what your cash position is right now?
What about the position in three month’s time and in the year ahead? Can you actually pay your key suppliers and your staff, and repay your loans and still draw enough money for yourself?
Could you run out of cash and, if you did, where would you go for the support to keep your business afloat? Would you know how much you need to keep the business alive? What would happen if you couldn’t get the funding you need for your business? What about the impact on your house, your family, your employees?
What are the warning signs and what should you be doing to protect yourself and your business?
Here are some of the warning signs:
What do I have to do?
You need to put in place measures to enable you to manage your cash flow and anticipate the peaks and troughs in demand so that you can take appropriate steps to mitigate potential problems. If you do need to borrow, you will need evidence that you understand and actively manage the cash flows of your business to encourage banks to lend to you on reasonable terms.
What should I do next?
If you are at all unsure of how to go about resolving your immediate cash flow problems and setting up an effective cash management system, contact your local Smart Support advisor for a free no obligation Business Health Check.