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Building Business Value – How Cash Flow Impacts It

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Building Business Value – How Cash Flow Impacts It

By , July 20, 2020
cash

Cash is the life blood of any business (including not-for-profit and social enterprise).

Keeping a constant eye on cash flows is one of the most important tasks for any business owner.  Many do not pay enough attention to their cash flow statements – many never even see one.  Then a crisis hits and before you know it, the bank is empty.  Viable businesses go under because of cash (or lack of it).  It’s a key factor in business sustainability.  Building your business value is based on the ability to generate a positive flow of cash.

A cash flow statement is history.  There are 4 reasons why it’s important:

  1. Tells you where the money went
  2. Allows you to focus on creating cash surpluses (for future spending)
  3. Provides important KPI’s
  4. Allows you to make more effective finance decisions

Having a pathological attitude towards cash means you know when and how much cash you will need for the next weeks, months and years without running out.

For more on getting a grip on cash flow, click here

Shortage of cash is one of the biggest killers of businesses.

Getting clarity on your numbers and your cash on a regular basis becomes critical to your decision making.  Effective decisions lead to increased business value.

Cash Flow Forecasting Means Knowing The Future

Cash Flow forecasting sounds, and sometimes looks, complicated but it should be very simple and relatively easy.  It’s mostly about finding the model that works for your business and that makes sense to you.  The more complicated you make something the less likely you are to maintain it.  Equally if you have someone producing reports for you, make sure you can read them.  If you don’t understand them, then they are a waste of time!!

Using different scenarios, you can see what the cash impact is, such as:

  • On a fall in sales;
  • A sudden increase in costs
  • A large future purchase commitment
  • A bank loan repayment

Cashflow Forecast

The cash flow forecast will show how your cash reserves will last, and what sales you will need and when.  This allows much more effective decision making.

The cash flow forecast is a living model and changes with every piece of new information added.  Understanding what it is showing you and being able to update it and undertake “what if” scenarios is an essential tool in the armoury for knowing your numbers.

Good cash management is one the essential habits of successful business owners.

The time spent making sure Cash Flow Forecasts are kept up to date and accurate will help develop the strategies to meet needs of the business as it grows.

Positive Cash Flow = Increased Business Value

If you are thinking about your exit plan, here’s another article to help you get started

Darryl Bates-Brownsword

Darryl Bates-Brownsword

Partner | Succession Plus UK

Darryl is a dynamic, driven Business Mentor and Coach with over 20 years of experience and passion for creating successful outcomes for founder-led businesses. He is a great connector, team builder, problem solver, and inspirer – showing the way through complexity to simplicity.

He has built 2 international multi-million turnover businesses; one now operating in 16 countries. His quick and analytical approach cuts through to the core issues quickly and identifying the context. He challenges the status quo and gets consistent, repeatable and reliable business results.

Originating in Australia, Darryl’s first career was as an Engineer in the Power Industry. Building businesses bought him to the UK in 2003 where he quickly developed a reputation for combining systems thinking with great creativity to get results in challenging situations.

A keen competitive cyclist, he also has a B Eng (Mech) Engineering and an MBA.