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Steady your business finances with a cash flow forecast

It’s not uncommon for businesses to struggle with cash flow problems, regardless of their size or industry.

Eighteen per cent of businesses suffer a cash flow crisis at least once a month, and for small businesses in particular, maintaining a healthy flow of cash throughout the business can be a challenge to say the least. It’s vital that SMEs get their finances under control, as for some, efficiently managing cash flow can be the difference between success and failure.

What causes cash flow problems?

Late or unpaid invoices can wreak havoc on a business’ cash flow, and regardless of how well the company is doing in terms of popularity or turnover, if the amount of money coming in doesn’t cover the amount needed to go out, problems may arise.

When a business doesn’t receive the money that it is owed on time, the standard of its output might suffer. Product quality can be affected and the delivery of services could grind to a halt, meaning that the business is unable to trade as effectively as desired.

While it may seem as though a surge in custom could help to get cash flowing again, sometimes it can cause the business even more problems, particularly if the company has to offer more services and wait for the financial reward. When a business doesn’t have the money to meet the demand placed upon it, a bottle-neck effect can occur.

Late or unpaid invoices aren’t the only cause of cash flow headaches. The following can also cause businesses to worry about their finances:

Thankfully, there are ways that small businesses can reduce the impact poor cash flow has on their company’s ability to trade effectively.

How can cash flow problems be resolved?

Business planning

Many SMEs find the prospect of business plans quite daunting, but planning ahead doesn’t have to be as difficult as it may seem. By taking the time to craft an in-depth business plan that details objectives, predictions, and KPIs - companies can prepare for growth and progression.

Cash flow forecasting

Cash flow forecasts may sound intimidating, but in reality they can really help businesses to manage their budget effectively. Companies can make financial predictions for the year ahead based on both history and data before planning how they will spread their finances throughout the year to cater for demand.

In its most basic form, a cash flow forecast can consist of a spreadsheet that lists income and costs on a monthly basis. If you’d like to create a more detailed forecast, you could break costs down into categories for easier analysis. You may find it interesting to see how seasonal changes can impact cash flow, and by identifying when your busiest periods are you’ll be able to put plans in place to minimise the likelihood of finance issues. 

To gain a better understanding of how a cash flow forecast could look, download our free cash flow forecast tool below.

Download your cashflow forecast tool

A helping hand

While business plans and cash flow forecasts are great ways of managing your businesses’ finances and preventing problems from occurring, cash flow problems can sometimes be impossible to avoid.

If you find yourself struggling to get on the right track, there are alternative finance solutions available to help you to trade effectively without taking out a traditional bank loan.

Invoice finance is one of the most popular ways to get cash flowing throughout a company. There are two main types of invoice finance, factoring and invoice discounting. While these two options have their differences, both enable businesses to unlock the equity tied up in unpaid invoices. 

Factoring

Factoring is often referred to as ‘debt factoring’ and usually involves an invoice financier who will manage your sales ledger for you and collect payments from your customers on your behalf. You’ll get the cash that you need straight away, and when your customer eventually pays up, the money will go to the financier. This could be the option for you if you’re looking to free up both cash and time so that you can focus on progressing your business, rather than chasing payments.

Invoice discounting

Invoice discounting gives you fast access to the money that you need, but while factoring gives the financier control of your ledger, in this case you’ll continue to manage the collection of payments yourself. If you’d like to obtain the cash you need quickly, without letting customers know that you’re using invoice finance, invoice discounting could be for you.

For more information about how you can free up cash within your business, please don’t hesitate to get in touch with Aldermore. With a range of alternative funding methods, we’ll help you to inject cash into your business without the need of traditional bank loans.

Disclaimer:

Information published in this website is intended to provide information only. The reader should independently verify the accuracy and relevance of any information provided here, before relying upon it or using it for any reason.

Sources:

http://www.santandercb.co.uk/news/nearly-two-thirds-uk-businesses-impacted-seasonality

The content published on this website is intended to provide information only. The reader should seek advice from experts on the subject matter and independently verify the accuracy and relevance of any information provided here before relying upon it or using it for any reason. You can view our terms and conditions here.

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