Cash Flow Techniques To Avoid Insolvency

Cash flow is one of the factors that you just have to get right when in business. If you are paying out more than you have coming in and cannot turn your assets into hard cash quickly enough, then you are doomed. Cash flow is everything and this is where you should first turn your thoughts to if you are worried about insolvency and the effects it would have on you and your business. 20% of newly formed businesses fail within the first 2 years and a percentage of these do so due to poor cash flow. Therefore there are many factors you want to take into account and tools you could use when it comes to the cash flow area of your business and here we take a look at some of them.

The cash flow statement is an essential part of any business and should be used as it would tell you what money you have coming in and going out of the business account over a certain period of time. With this you could combine and make use of a cash flow forecast which will give you an indication as to how much cash could be expected over the period of time you choose. Other factors of primary concern should be how quickly you can turn assets into cash. So in theory there are two types of cash flow statement:

• The actual statement which shows the amount of cash that has flowed through the business over any given time. For example a period of 6 months or 1 year.
• The forecast statement which is based on your actual cash flow over previous years and which predicts the cash flow over a certain period of time in the future. For example the next 6 months or 1 year.

These two tools are the most valuable you have to ensure that your business runs smoothly and which can go a long way towards ensuring that your business does not run into insolvency problems which could lead to the businesses downfall. Taken into account in the cash flow statement is your revenue, expenses and balance

As mentioned above the cash flow plays a huge part in avoiding insolvency. You could compare your actual cash flow statement against the forecast statement and this will tell you a great deal about your business including:

• Whether things are working out as well as you expect
• If not then you would be able to examine why not
• You can then turn your attention to turning things around
• Above all you could prevent a cash shortage

You could also use the predicted cash flow as a rough guide to tell you whether or not you are likely to be able to meet your outgoings in the future. If not then insolvency is a huge threat if you have or will have debts and you would need to get in touch with a financial advisor who would be able to answer your debt questions and help you to possibly reach a plan to avoid insolvency. For example if you have debts in other areas beside your business then you could consider looking into an individual voluntary arrangement which would allow you still trade. Of course again you would need to consult a debt advisor and ask any IVA questions before rushing into this solution.