As well as your business plan, a set of financial statements detailing you cashflow

is essential. This will provide details of actual cash required by your business on
a day-to-day, month-to-month and year-to-year basis.
The needs of a business constantly change and your cashflow will highlight any
shortfalls in cash that will need to be bridged. Many established, viable, and even
profitable businesses fail due to cash not being available when they need it most.

Good cashflow management is critical to running a successful business. You must be

able to pay your bills while you await payment from your customers. There are many
well-documented cases of businesses failing not because they weren't profitable but
due to poor cashflow management.

You're in business to make a profit. It's a simple principle, but one that can
occasionally become lost amid dreams of building multinational empires worth
millions of pounds. You won't be able to stay in business, however, unless you have
cash, hence the famous adage 'cash is king'.

There will probably be a time lag between your business providing its goods or
services and getting paid. This means you have to make sure there is sufficient
cash in your company's bank account for it to pay all its bills in the meantime �
whether these relate to invoices from suppliers, employees' wages, rent, rates,
tax, VAT or anything else.

Even if your business is profitable, there may be times when you are short of cash
because you are awaiting payment for a large order. This is likely to be a
particular problem during your first year when you are building up your business
and don't have regular cash inflows.

The general principle of cashflow management is that you should speed up your cash
inflows (customer payments, interest from bank accounts etc) and slow down your
cash outflows within reason (purchase of stock and equipment, loan repayments and
tax charges etc) as much as possible.

It can be difficult to affect your outflows other than extending your credit terms
with your suppliers, which will often occur on fixed dates in the month and your
employees and suppliers might also not take too kindly to you delaying payment to
them. But there is more scope for you to improve your cash inflows.

This could mean billing regularly, chasing bad debt, selling your debt to a third
party (factoring), negotiating extended credit terms with suppliers, managing your
stock effectively (which could entail ordering little and often) and giving your
customers 30-day payment terms.

Also, as businesses naturally have peaks and troughs, it is important that you put
money away during the peaks so that you can dip into it during the troughs.

It is a good idea to think about investing in some accounting software to help you
manage your cashflow. There are many software providers: an internet search should
reveal the most common. Most provide software that can help you with cashflow
analysis and forecasting, so that your business is never caught short of cash in
the bank. Your accountant should be able to help advise you on which software
package to buy.

HOW TO USE THE CASHFLOW FORECAST TEMPLATE

Our cashflow template will show you how a cashflow works and should be amended to
suit your own business.

All figures to be entered are actual cash. This includes bank payments and
receipts, cheques, bank transfers, cash payments and receipts � all of these should
be included in your opening balance.

Then complete the shaded area opening balance, which includes bank, loan and cash
balances and should be put in the sheets:

monthly cashflow forecast

monthly actual cashflow
This provides the starting point for the rest of the cashflow. Next, input your
month 1 forecast � all the sales broken down into the elements of your particular
business � and do the same for expenditure. Base your figures on your own
experience and what you forecast to receive or pay. The sections can be amended to
reflect your business's requirements.

Repeat this process for the actual cashflow; here the figures you input are based
on actual. This should then automatically be displayed in the third sheet:

monthly cashflow forecast/actual comparison

This is where the real analysis work is done and will determine the accuracy of
your forecast figures. The forecasts sheet should be used to determine when you may
have a cash shortfall before the event arises and will help determine whether you
will need to obtain additional funding.