Cash Flow Planning
A healthy cash flow is the life blood of every business, more so when donors are in short supply. You may be the market leader, have award winning products or be voted a top 10 employer, but if you do not have enough cash to pay the bills, it goes without saying that you will not be in business very long.
Cash flow problems are widespread and are not only the concern of the small business owner. Long before the current financial crisis, many large businesses were in difficulty. In 2006, 50% of US airline seating capacity was receiving Chapter 11 bankruptcy protection.
For the majority of businesses, getting cash flow management right first time is business-critical. Running a business at full speed and neglecting the impact of cash is a fast track route to bankruptcy.
Whilst not all cash flow problems can be avoided, a large number can, and much of what is required is common sense.
Confusing profit with cash
It is important not to confuse cash with profit. You may be able to forecast a good profit for the year but still run into cash flow problems. When developing the annual budget, care should be taken to include a monthly cash flow forecast. It is important to understand and plan appropriately for the impacts of items such as these: seasonality, capital purchases, inventory purchases, long term contract work and insurance premiums.
