2020 has changed business forever. If we have learned anything from this crisis, let it be that Cash is not just King, but also Queen.
I learned that lesson a long time ago. The hard way. In my area there was a shortage of sandwiches for companies, so I installed a mini kitchen in the basement of my dad’s optics store. Six months later I decided to accelerate and rent a building. Delighted to convince the bank to lend me a lot of money, I bought the most beautiful interior I found. On gut feeling. It felt powerful to have a large sum of money in the bank account.
The consequence? When the first delivery of raw materials arrived two months later, I couldn’t pay.
Why cash forecasting?
Was this period a line through the bill for you? Then you’d better make sure you know what charges are coming soon. Just think of VAT, corporation tax and open suppliers.
Cash forecasting – or cash planning – means: planning future income and expenses and comparing them with your cash. The result is that you get a view on your cash position, the total available cash. This gives you insight into the impact of business decisions on your cash flow. A solid cash flow planning also gives you insight into opportunities. Do you know exactly what costs are coming to you?
I don’t wish anyone the feeling of not being able to pay your bills. It is horrible: you can’t sleep because of it, it’s the only thing you can think about and you don’t dare to look some people in the eye. However, this is much more common than we think. In retrospect, I realized that if I had kept a solid financial planning from the start, none of this would have happened – after all, my business was always profitable.
So take it from an expert by experience: cash planning is a must.