Managing Cashflow Effectively To Avoid Insolvency
If you want to know how to avoid insolvency, you must take care about managing cashflow effectively.
If you spend money on your business faster than you get it in, even if you are busy doing a great job at selling and delivering your goods and services and making a fantastic profit you will ultimately run out of cash.
If your business runs out of cash your business will become insolvent and will fail.
Dont become another statistic!
Most business failures are due to cashflow problems, often because money they are owed is simply paid to them either too late or ultimately not at all, or due to a lack of planning in the first place, which has led to overspending.
Plan – Plan – Plan ahead!
Managing cashflow effectively starts with a cashflow forecast. This simply plans ahead the projected cashflows both in and out of the business, on a month-by-month basis, so that you can see the optimum level that you can run the business effectively.
For example if you need 10k per month to keep your business running and to cover costs, and your cashflow forecasts show that you are only bringing in 8k per month – you can see that even if everything went to plan – you already have a problem.
This plan can be as simple as a spreadsheet, which forecasts your outgoings, and incomings monthly. However, as soon as you move away from the plan (as inevitably you will), you need to be able understand the consequences to your business, and adjust it accordingly, in order to get back to plan and avoid insolvency.
This could involve cost cutting, spending less, selling more, or more effectively getting cash in quicker, in order to improve your cashflow, or a combination of several of these.
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