Why cash flow?
Cash flow projection is the most powerful tool in cash management. It enables you to see the cash flowing in and out of your organisation so that you can plan for surpluses as well as deficits.
Essentially, the cash flow projection is a forecast of your organisation’s cash income and expenditures on a monthly basis. Preparing cash flow is like preparing a budget and balancing your cheque book at the same time. But unlike your budget, it deals only with cash transactions over a specified period of time.
Cash flow projection does the following:
1. It tells you when you need additional cash.
2. It gives you time to plan for deficits rather than reacting at the last minute.
3. It helps you to plan ahead to utilize the fund effectively arising from cash flow surplus.
How to start?
Using your annual operating budget is the starting point; you begin by identifying each month’s anticipated income, then identify each month’s anticipated expenditures, and arrive at each month’s cash flow.
To be effective, your cash flow projections should be updated at least monthly, if not weekly, using actual information, such as receipts, cheques, bills and account figures. That way you will know what actions you need to take or which expenses you need to monitor in order to ensure that cash flow stays positive.
HOW DO I MANAGE CASH FLOW DEFICIT?
1. Use a line of credit from a local bank: A line of credit helps smooth over fluctuations in cash flow.
2. Obtain short-term loan: These loans are for a short term (less than 90 days) and you will be expected to repay them once the funds from the contract or sales credit are received. These soft loans aid the improvement of working capital of an organisation.
3. Speed up the collection of accounts receivable: Sometimes, you may have to speed the collection of money that is owed your company.
4. Liquidate investments: Perhaps there are stocks, bonds or certificate-of- deposit accounts (CDs) that you can liquidate. If you are investing in CDs, you can structure them so that they mature when you need the cash.
4. Cut expenses: There may be expenses in your budget that could be deferred or cut.
5. Delay payment to vendors: If you are really in a tight corner, you may need to consider negotiating with your vendors. Perhaps you have bills that are due within 30 days that can be extended to 60 to 90 days. Explaining your situation honestly and requesting a revised payment schedule is much better than simply ignoring the bills.
HOW TO MANAGE YOUR CASH FLOW SURPLUS?
I. Invest in short-term instruments: Through safe, low- risk investments, you can add interest income to your cash inflow.
2. Invest in liquid instruments: You may invest the cash surplus in a liquid account such as a money market.
3. Purchasing: Use the surplus to buy supplies that you will be used over the course of the year at a reduced, volume rate.
For further enquiries send your questions to the email address below.
Thanks
By Oluwafemi Adigun
Managing Partner
CLEAR EDGE PROFESSIONAL SERVICES LIMITED
adigs2k@yahoo.co.uk
0803-346-2408
