Surfs Up!

Stay on Top by Riding on the Crest of a Wave

– For many businesses, financing their cash flow is like surfing a continuous wave, with no break to pop up for breath. To make it even more challenging the distance between the peaks and troughs are hard to judge and manage without the right tools in place.

Sales are up, then they go down. Margins are good, then they flatten out.

Over one-third of small businesses have had cash flow problems during the past two years of the economic downturn.

In the credit crunch many small businesses are struggling to manage cash because their customers have extended their payment days, without warning.  Some business owners are having to wait over 90 days for payment.

These businesses are stuck between a rock and a hard place. They are frightened to enforce any late payment penalties for the fear of losing valuable contracts with major customers.

No matter why you have a cash flow challenge, the question is – how do you manage a business with an erratic cash flow?

During my early years in business I thought a cash flow forecast was a useless tool that was time-consuming to produce and pointless to rely upon.

I am happy to say after using them day in – day out to help businesses achieve their goals. I have completely switched my way of thinking. I believe they are fundamental to the success of any small business.

It’s difficult to see how any SME’s can make informed key decisions in the business without a cash flow forecast.

A weekly cash flow detailing every single payment in and out of the business can give control back to the business owner.

When cash is tight and you are up to your availability limit, it should be updated weekly, at least at the beginning.

There is too much variability over the course of a single month to get an accurate hold on the flow.

Good solid information provides the basis for forecast so it is important to spend some time on due diligence to get the figures right.

The more details the better!

If the milk man expects his cheque on a Monday and cashes it on a Thursday, we need to take this into account.

The forecast is an attempt to minimise the surprises around the corner.

By establishing a bearing of where you are and what’s ahead – that’s known, you allow yourself the opportunity to make better business decisions.

Working out the fixed cost is fairly simple,.  Use the company bank statement to see when payments leave the account.  You then need to list all other payments that you will pay that week.

The next step is to add these figures onto a spreadsheet along with all incoming payments.  This will include current orders plus taking a historical view on projected sales and any additional income that the business will generate.

Make sure the sales are added to the spreadsheet at the point at which the monies will come in from the customer, not when the invoice is raised.

You then have the basis for your cash flow.

A simple formula added to the spreadsheet will calculate the net movement per week.  The opening balance of the bank account is the starting point.

The business now has a tool that gives clear visibility on when there will be a surplus and a deficit in the cash levels.

To aid the business in keeping cash flow at a relatively consistent level you can shuffle the creditor and debtor days to suit the needs of the business, pulling in payments and extending creditor days, if and when needed.  Managed correctly this can be a life-saving exercise to the business.

Done that, still got a short fall – lets look at ways to finance it.

Financing cash flow is unique to each business due to industry, sector, business model, stage of business, business size, owner resources, and so on.

Each business must self assess its sources of financing cash flow, including but not limited to owner investment, trade or payable financing, government remittances, receivable discounts for early payment, deposits on sale, third-party financing (line of credit, term loan, factoring, purchase order financing, inventory financing, asset based lending, or whatever else is relevant to your business).

Other potential strategies for expanding your sources for financing cash flow.

  • Develop strategic relationships with key suppliers that have the ability to extend greater financing in certain situations to take advantage of sales opportunities. This is accomplished with larger suppliers that have the financial means to extend financing and view your business as a key customer and valuable partner.
  • Make sure where possible that your annual financial statements show a profit capable of servicing debt financing. If you drive business profitability down through tax planning, you may also effectively destroy your ability to borrow money.
  • Tighten up your credit control, communicate with customers on a weekly basis, if they aren’t paying within agreed terms stop supplying them.
  • Where possible, only transact with credit worthy customers. Credit worthy customers allow both the business and potential lenders to finance receivables which can increase the amount of external financing available to you.
  • Develop a liquidation pathway for your tangible assets. Equipment and inventory are easier to finance if lenders clearly understand how to liquidate the assets in the event of default.
  • Explore joint venture with another business to share the risk of a large sales opportunity that may be too risky for you to take on yourself.

Once you have a detailed forecast and understanding of your options available for financing cash flow you are in a strong position to move forward

You can even build it into your marketing plan and entertain future sales opportunities that fit into your cash flow. This is a layer of marketing that most companies don’t build into their planning process.

Most businesses work under the premise that you market your business to find opportunities where sales are made and “we’ll worry about financing later”.

It is key to the viability of the business that you should only market and sell what you can cash flow.

If you can’t cash flow the business to complete the sale and collect the proceeds, there is no ROI to measure.

In the short-term, survival depends on only entering into business that is neutral to positive in terms of financing cash flow.

Once the business is in recovery it has the potential to smooth out the peaks and troughs through a more robust plan that will line up with customer needs and the business’s financing limitations.

And don’t forget cash flow financing is not just about getting a loan, overdraft or factoring facility when you need more available funds.

It’s a process of keeping a continuously positive cash position at the lowest possible cost.  Achieving this through strategic utilization of all available sources for financing cash flow available to you is the key to your success.


  • Micro manage your cost and accurately project out the cash flow requirements of the business on a weekly basis.
  • If you experience a fall in sales have a detailed list of available options for alternative ways to finance your cash flow.
  • Incorporate your financing constraints into your marketing approach.
  • If possible, only transact with credit worthy customers to reduce risk and increase financing options.
  • Work towards expanding both your financing sources and available source limits for financing cash flow

Don’t get wiped out – ride the waves with of your cash flow with some Over the Horizon Thinking.


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