We all know that cash is king.  Knowing you have cash is one thing but to know how it will be impacted by key strategic decisions is another.

I talk to many clients and ask how versed they are with their cash position i.e. do you know where you are at financially at any point in time? Most clients are aware of how much they have by information provided by their bookkeeper or knowing what is in the bank.

While I understand this is the most accessible form of information, if you have growth plans or strategic changes underway, it is imperative you know how these impact your cash position. More importantly do you have the cash in the business or access to cash (working capital) to implement these strategies?

This is where I use and recommend ongoing cash flow forecasting. I live by it and always have because of its value in helping you prepare for anything that may happen in your business.

For example, if you decide on a 20% growth plan and you have debtors days of 60 days and creditors of 45 days, you need to see how your cash flow is impacted, i.e. if you then start invoicing 20% more and wait the same number of days to receive payment, coupled with purchasing 20% more in goods and services and pay in your usual terms, the above scenario could cause a cash drain on the business. Now depending on the changes in dollar terms, whilst this 20% growth target sounds like a great idea, it could be catastrophic to the business if you cannot cover that cash flow drain. This is what's referred to as your working capital requirements.

This is a simple example, however one I come across all the time. That is why I do believe a cash flow forecast is worth the paper it is written on, and a very important step in knowing the numbers for your business.

If you need a cash flow forecast prepared or would like to discuss the cash flow requirements of your business, please feel free to contact one of our team here at Rochdale on 6620 0300.

On behalf of the team at Rochdale Accounting & Financial Services, I would like to wish our valued clients and friends all the best for the festive season and a happy and healthy 2012. Our office will close at 12.00pm on Thursday 22^nd December and re-open at 8.30am on Monday 9^th January.

Until next time,

Troy