The world of small businesses in the UK can be a harsh, yet exciting, arena. Navigating this landscape without the appropriate tools and strategies can potentially lead to disastrous consequences. Cash flow planning emerges as an indispensable strategy in this regard, functioning as a beacon guiding businesses amidst the stormy seas of economic uncertainty.
Here are four key numbers that small businesses in the UK need to track to create an effective cash flow plan:
- How much cash is in the bank and anticipated changes over the coming days, weeks and months. This is the most basic number, but it’s important to know how much cash you have on hand and how long it will last. If you don’t know how much cash you have, you won’t be able to make informed decisions about your business.
- Turnover (revenue and inventory). Knowing your turnover or gross revenue is essential, but you also need to track stock turnover. This will help you understand how much money you’re tied up in stock and how it’s affecting your cash flow. If you have too much stock, you’re essentially tying up cash that could be used for other purposes.
- Cost of sales. This is the cost of making your sales, and it’s important to track this number closely. If your cost of sales is too high, you’ll be losing money on every sale. There are a number of things you can do to reduce your cost of sales, such as negotiating better prices with suppliers or finding ways to streamline your production process.
- Net profit. The ultimate figure in cash flow planning, net profit is your business’s bottom line. Monitoring your net profit margin provides a snapshot of your business’s profitability. If this number is insufficient, it could be a signal to revisit your business model and introduce necessary modifications to enhance profitability.
By tracking these four key numbers, you can create a cash flow plan that will help you stay afloat and grow your business.
Here are some additional tips for creating an effective cash flow plan:
- Start by tracking your income and expenses for a month or two. This will give you a good baseline for understanding your current cash flow situation.
- Once you have a good understanding of your current cash flow, you can start to forecast your future cash flow. This will help you identify potential problems and make adjustments to your business plan accordingly.
- Be sure to review your cash flow plan on a regular basis. This will help you stay on track and make sure that your plan is still working for you.
In a nutshell, the mastery of cash flow planning is an absolute necessity for small businesses in the UK. By diligently monitoring the four crucial figures aforementioned, you will have a robust plan, a lighthouse amidst rough seas, ensuring your business doesn’t just stay afloat, but continues to prosper and grow.