Cash Planning for your Small Business:

When planning the short –or- long term funding needs of your business, it is more important to forecast the likely cash requirements than to project profitability.

Cash planning entails forecasting and tabulating all significant cash inflows related to sales, new loans, interest received etc. and then analysing in detail the timing of expected payments related to suppliers, wages other expenses capital expenditure, loan repayments, tax, interest payments etc.

The difference between the Cash-in- and –out flows within a given period indicates the net cash flow. When this net cash flow is added to or subtracted from opening bank balances, any likely short term bank funding requirements can be ascertained.

A projected positive net cash flow over several periods highlights the capacity of your business to generate surplus cash and conversely, a cumulative negative cash flow indicates the amount of cash required to sustain your business.

In building a plan for your business, be aware of the following pitfalls which may influence your cash projections:

- Overstating sales forecast

- Underestimating cost and delays likely to be encountered

- Ignoring historical trends or performances by debtors

- Making overly-optimistic assumptions about the availability of bank loans, credit etc

- Seeking spurious accuracy while failing to recognise matters of strategic importance.

These pitfalls may arise as the result of a lack of foresight or knowledge, or because of excessive optimism. They can lead to under-estimation of the cash and other resources required to sustain or develop a business, with potentially disastrous consequences.

 When forecasting bank requirements and preparing cash flow projections, realistic views should always be taken about future prospects. There is often merit in compiling "worst" case projections to complement "most likely" or "best" forecasts and to accept that the "worst" case might occur and to plan accordingly.

Once the cash flow projections have been prepared, they should be critically examined and used as a management tool to control and improve the business's expected cash position. Issues which might be examined include the following:

1. Increase sales (particularly those involving cash payments).

2. Reduce direct and indirect costs and overhead expenses.

3. Review the payment performances of customers

4. Reduce the amount/time of credit given to customers.

5. Bill as soon as work has been done or order fulfilled

6. Improve systems for billing and collection.

7. Use the 80/20 rule to control inventories, receivables and payables.

8. Generate regular reports on receivable ratios and aging.

Cash Planning will help plan your business's cash requirements, improve control over cash flows and conserve cash resources.

10 tips on Improving Business Collections

An effective collections process goes a long way to stabilising cash flow for any business. But how many business owners see its true value.

You would agree that most business customers pay their bills on time and the majority of the collections efforts are usually centred on a few customers who tend to take advantage of any loop holes. It is therefore a prudent business strategy to have an effect collections process.

Here are 10 tips to ensure that your collections processes are efficient:

1.  Ensure your customers are aware of the terms of payment and this is in writing. These terms should appear on every document sent to your customers, including invoices, statements and collection letters

2.  The longer a collection is past due the more of an effort to collect. Ensure your process are sufficient to highlight any invoices that are past due date and initiate collection process immediately

3.  The telephone is the most effective collections tool/technique, use frequently in your processes.

4.  A courteous, firm and professional collections process will provide respect from your customers and will deter delinquent payments.

5.  Ensure you ask for commitment to pay, on a specific date, by negotiating with the individual with the  authority to make the commitment and provided for in writing.

6.  Be prepared to hold orders as leverage to ensure payment of any past due invoices.

7.  Develop a specific in-house Collections treatment plan. This involves setting up different treatment for different levels of overdue payments. i.e. 0- 30 days, 30-60 days etc, this will ensure that you treat these categories with added emphasis.

8.  Outsource any past due payment that are more than 90 days to collection specialists. This will allow you to direct your efforts to more collectable amounts.

9.  Ensure you have good communication with your customers from the onset. This will help to ensure any issue that arise which could stop payments, are addressed prior to payment date.

10. Many collections problems result from poor or inadequate initial customer investigation (credit checks). It is prudent business practise to have some investigation on your customers before you offer any form of credit. This will ensure your business is trading with customers who are good payers and provide for good cash flow to your business.