Cash flow is the lifeblood of operations. Yet, too often, I've seen businesses become blindsided by unexpected cash shortfalls.
Despite good sales, a strong reputation and steady growth, poor data practices and lack of forecasting can all put small to medium sized companies at risk of going under. But you might be surprised to learn that one of the biggest threats to your company’s financial health is inadequate financial reporting.
If your financial reports are outdated or incomplete, you’ll lack the realtime insights you need to assess your company’s cash position. Failing to have this information to hand can result in a range of issues that can negatively impact your business, including missing supplier payments, making mistakes within your payroll, or losing out on investment opportunities.
Without timely reports, you might also unknowingly overextend your spending or fail to spot upcoming slow revenue periods. This reactive approach to finance often results in last-minute scrambles for funding or emergency cost-cutting measures.
The common pitfalls
In my experience, there are several recurring problems that often lead to poor financial visibility within a business:
Over-reliance on spreadsheets. They are prone to human error and can lack realtime integration.
Inconsistent record-keeping or failing to reconcile accounts regularly leads to incomplete or misleading financial data. This not only impacts current reporting but also undermines any future projections.
Lack of forecasting. Many SMEs operate without a formal cash flow forecast (or only forecast sporadically). This short-sightedness can mask seasonal fluctuations, delayed receivables, or upcoming large expenses, leaving the owners and management team unprepared for what’s to come.
The importance of cash flow forecasting
A robust cash flow forecast will give you a clear picture of your incoming and outgoing cash over time. Regular forecasting will help you plan ahead, identify cash gaps in advance, and make better informed decisions about expenditures, hiring, or investments.
I recommend that forecasting is updated monthly – or even weekly in fast-moving sectors-and is designed to account for best- and worst-case scenarios. This level of planning not only prevents surprises but also builds confidence with investors and lenders, who value transparency and proactive management.
Take action now by:
1. Adopting cloud-based accounting software. Platforms like Xero offer realtime data integration, automated bank feeds, and simplified reporting.
2. Automating your invoicing and payment reminders. Doing so will ensure your customers are invoiced on time and follow-ups are consistent.
3. Scheduling regular financial reviews. Monthly management accounts that include a profit and loss statement, balance sheet, and cash flow report should be a routine part of your operations – no excuses! Reviewing these with an expert will help you identify trends and correct any issues early.
4. Improving your budgeting and forecasting. Many accounting platforms support forecasting modules or integrate with dedicated tools like Fathom. Alternatively, you can enlist the help of a finance professional (like me!) to help you crunch your numbers more effectively.
Remember, financial surprises are rarely a sign of bad luck – they’re usually the result of poor visibility! Make sure you prioritise accurate, timely financial reporting and embrace the incredible technology that’s out there to build your company’s financial resilience and stay ahead of cash flow challenges.
After all, succeeding in business is not just about surviving the next crisis. It’s about growing confidently, backed by a clear and current understanding of your business’s financial health.
Contact me, Mark Brown at L4 Financial, to find out how I can help you achieve better financial visibility within your business.
w: L4Financial.co.uk
e: Mark@L4Financial.co.uk
t: 07960 031554