How much do you know about your cash flow situation?

Chances are, you know how much money you have in the bank right now. If you're doing your own bookkeeping, or keeping a close watch on your receivables and payables, you can probably guess how much money you'll have in the bank in a month.

But what about six months from now? Do you know how much cash you'll have then? If you don't, you could be endangering your business.

How so?

Well, for starters, almost every business is affected by the state of the economy. As your customers get squeezed by the tight economy, they're going to start to cut back on expenditures, or delay payments to vendors. Some, unfortunately might even file for bankruptcy.

Additionally, many of the business decisions you make today will affect your business in future months. Decisions such as hiring new employees, giving existing employees raises, building a website, and even signing contracts to deliver products or services to your customers in coming months all commit you to spend money in the future.

Finally, there are decisions the people you buy from make. The cost of supplies, raw materials, inventory, or services you buy may increase.

If you don't stay on top of all these future costs, and if you don't make accurate estimates about the cash you'll have on hand to pay your bills when they come due, you could quickly find yourself between that proverbial rock and hard place. In other words, even if you have plenty of business coming in, you may not have the cash on hand to pay your bills – and may not be able to raise it on short notice.

To avoid the problem, take the time to do a six-months cash flow projection for your business. Use figures that are realistic. Don't overestimate your sales, or how soon your customers will pay their bills. To be on the safe side in the current economy, make best and worst case scenarios.

Base your figures on trends you're seeing in sales now, as well as on prior year sales, if you have them. (And, don't forget to take seasonal variations into consideration.)

If your six-month cash flow projection looks ominous, take steps now to try to forestall future problems.

7 Cash Flow Secrets Your Accountant Never Told You

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