Next month’s cash position Alberto Neyra Estens | February 11, 2016

What would support you to have a viable business? For an owner-managed business it is vital to monitor cash flow and identify as early as possible if the the cash flow is going too tight. Knowing the next month’s cash position can be a make or break factor.

A company may show a profit in the income statement but has very little or no cash to pay its bills. Therefore, the company may be insolvent in spite of it being profitable as creditors may sue it to try to collect their unpaid claims. In this situation, the firm the creditors may start bankruptcy proceedings and the firm may be declared bankrupt by court ruling. Profits may arrive too late to save the company!

Profitability and illiquidity may well happen together when the company is growing fast and increases its inventory to cope with client’s orders. Receipt of revenue from sales may fall behind payments to supply creditors thus causing insolvency and placing survival at risk.

Regular cash projections help identifying the profitability of the business and, very importantly, the funding requirements. That blocks making business decisions in a rush.