Your bank or other financial institution will expect a company that applies for funding to complete monthly management accounts and maintain a fairly detailed cash flow forecast. Figures can be approximate. You should have two cash flow forecasts: one that covers the next twelve months and, another showing the actual figures for the past twelve months (cash flow 'statement'). The cash flow form with this package is for 'ball park' figures. Applications such as Microsoft Excel, MS Office and MS Works have detailed and simple cash flow forms.

Management Accounts

It is important for the business owner to concentrate on core activity: be it sales, production, marketing etc. There is a clear line between a business owner who is fully aware and in control of the company's financial position, but concentrates on core activities: and the owner who spends too much time learning, updating, and monopolizing the accounting software package, to the detriment of the company's business.

Off the shelf' software has been available for many years. Some are 'child like' simple, most need a few days to pick up. Some (usually the expensive ones) give you far more than you need, or need to ever understand.

You need a package that allows you to achieve and maintain both your business goals and accounting
standards.

I know of many companies who assess their solvency purely on the amount of cash at their bank! It
seems to work; however, I have seen very little growth from those companies.

When I visit them (to give them a financial health check), and I complete a one page 'management account' form, providing them with a 'bottom line figure', their guess of how much that figure should be is usually out by as much as 30%. This means insolvency is always a possibility. I do not doubt that many business owners have a 'feel' for their own company and instinctively know when trouble is 'around the corner'.

Management accounts are perceived as a time consuming task 'better left to the accountant' once a year. For most businesses this is a fallacy. Obtaining the necessary figures is more about practice than time or skill. You do not need 100% accurate figures. You get used to, and experienced at estimating some of the figures (at least twice a year you should ensure your figures are as accurate as possible).

Once you start building up a database of monthly information you will start to see trends. Trends are a business owner’s early warning system. When you have established trends you can identify anomalies when they happen, and not when they take a negative effect on your cash flow, sales, etc.

You can make strategic decisions such as stock levels, debtor, and creditor levels (cash to credit). You can manipulate current needs, in the knowledge of future trends.

The effect of such changes can drastically increase your cash flow and thereby reduce your overdraft and financing costs.

It has been my experience to turnaround a company's fortune solely by managing a company's current assets and liabilities. For a simple example, reduce by 2 weeks the time that your customers take to pay you: and increase by 2 weeks the time you take to pay your suppliers (if you currently pay within 50 days): on a turnover of £500,000: this could provide an instant £40,000 increase in your cash flow.

Cash Flow Forecast:

The purpose of  a 'Cash Flow Forecast' is to provide the business owner with projected figures (usually over a 12 month period) that are calculated to ensure (as a minimum) the survivability of the company, and ultimately the achievement of a planned and profitable target.

In the basic sense, cash flows into a company (through sales) and flows out (through expenses). Expenses come in two forms:

• Fixed Costs: Rent, Rates, Lease, Gas, Electric, Wages (support staff)
• Direct Costs: Materials, Direct Wages (actual labour force), Delivery, Post