Available cash directly affects daily decisions, whether a business is starting up, growing or already trading. Profit alone does not ensure that wages, suppliers and other commitments can be paid on time. Cash-flow management is therefore a continuing task, not just a check of the bank balance.
Understand cash flows and financial risks
Track actual and forecast money coming in and going out. Collect customer payments promptly, schedule supplier payments within agreed terms, and keep a clear view of banking operations. Cash forecasts help anticipate needs and maintain informed relationships with lenders.
The challenge combines tax and social-security deadlines, supplier payments, customer collections and the cash generated by trading. Cash results from all financial flows and the financing choices made by the business.
- Profitability: the ability to generate recurring earnings.
- Solvency: the ability to meet longer-term commitments.
- Liquidity: the ability to pay daily obligations when due.
Five causes of cash deterioration
1 — A growth-related cash shortage
Higher sales can increase working-capital requirements: more stock, customer receivables and operating costs must be funded before cash arrives. Short-term credit may not adjust quickly enough. Options to assess with advisers include additional long-term resources, timely financing discussions and, for an appropriate concept, a carefully prepared franchise development model.
2 — Poor working-capital management
Longer customer payment times or unnecessary stock can make working capital grow faster than sales. Establish collection procedures, involve the relevant teams, control stock and assess suitable receivables financing.
3 — Unsuitable financing choices
Funding too many long-lived investments from operating cash can weaken the business’s resources. Review the capital structure and whether longer-term finance is appropriate for those investments.
4 — Loss of profitability
Accumulated losses reduce equity and financial resilience. Restoring profitability and, where appropriate, strengthening capital should be assessed with the business’s advisers.
5 — Falling activity
If sales decline without corresponding production, stock and fixed-cost adjustments, cash can deteriorate. Monitor management indicators and examine variable-cost options without undermining operations.
Three objectives of cash management
Maintain liquidity
Use forecasts to identify the coming year’s needs, discuss suitable short-term facilities in advance and finance investments without consuming excessive operating cash. Match financing duration to the nature of the need. Review activity and working capital monthly and act on early warning signs.
Understand banking costs
Good forecasts and informed negotiation can help manage borrowing interest, value dates and transaction fees. Review overdraft-related charges, per-operation fees and account movement charges where they apply. Products and terms vary by bank and jurisdiction.
Build balanced banking relationships
Avoid excessive dependence on a single lender while ensuring that banks understand the risks they finance. Where appropriate, having more than one banking contact offers comparison and complementary options. Share credible forecasts and solutions: neither the business nor its bank should be surprised by an avoidable shortfall.
Prevent avoidable cash pressure
Invoice regularly
Invoice promptly after delivery or according to agreed milestones. Waiting until month-end can delay collection even when the contractual payment period is short. Select a practical invoicing frequency — weekly, fortnightly or monthly — and respect the agreement. Bank transfers or direct debits can make due dates easier to monitor.
Establish a collection process
Review aged receivables regularly, using accounting software or a structured spreadsheet. Prioritise overdue invoices, contact customers and document follow-up. Obtain appropriate accounting or legal advice for disputed debts, provisions and formal recovery.
Agree deposits or milestone payments
Where the sector and agreement permit, deposits and payments at completed stages can reduce the gap between resources committed and cash received. This is relevant to projects requiring substantial upfront work, but payment terms must be agreed transparently with the customer.
Assess factoring carefully
A factor can purchase or finance receivables and provide collection services under an agreement. Compare fees, exclusions, recourse, credit protection and operational costs with the alternatives, including internal collection and overdraft costs. Not every invoice or customer is eligible.
Manage stock and receivables
Compare carrying costs with tighter replenishment, while accounting for delivery times, transport and supply reliability. Improving margins also helps cash, but working-capital improvements specifically address stock, customer balances and supplier terms.
Schedule supplier payments
Use agreed payment terms rather than paying unnecessarily early. Never treat this as permission to pay late. An early-payment discount can be worthwhile, but compare the saving with the cost of using cash and the actual period concerned.
Where franchising can contribute
If a concept has growth potential, a franchise readiness review can assess whether expansion through independent partners is suitable. Franchisees may fund their own unit, opening stock, premises and agreed contributions, changing the franchisor’s investment needs.
Franchising is not an emergency cure for a cash shortage. The head office still needs to finance assessment, documentation, recruitment, training and continuing assistance. The business model must remain viable for both parties.
Practical financial controls
- Early-payment discounts: distinguish a financial discount from a commercial price reduction. Compare the actual saving with borrowing costs; avoid misleading annualised comparisons.
- Bank reconciliations: match account records with bank statements to identify payments not received, missing transactions and errors.
- Value dates: check when receipts become available and debits take effect. Processing dates, weekends and banking terms can affect available cash.
- Learning from payment history: review terms for consistently late-paying customers and assess the margin, risk and commercial value of the relationship.
Build cash forecasts
The cash budget
A cash budget estimates inflows and outflows month by month, commonly over six or twelve months. Start from sales, purchasing, staffing and investment budgets. Challenge overly optimistic assumptions with your accountant or adviser.
Convert accounting dates into expected cash dates: apply realistic customer collection times, supplier terms and the appropriate tax payment calendar. Include VAT or other relevant taxes based on the applicable rules. This makes funding gaps and working-capital requirements visible before they occur.
List expected receipts and payments comprehensively and place them in time. The forecast helps assess affordable spending and whether financing or a revised payment schedule needs to be discussed. Precision decreases farther into the future.
The rolling cash forecast
Unlike a budget fixed at one point in time, a rolling forecast is updated as trading progresses. Record actual cash movements and forecast future ones, including applicable taxes. Choose daily, weekly, fortnightly or monthly intervals according to the business.
A thirteen-week view can help short-term management, alongside longer-term projections and historical results. At each review, compare actual flows with forecast flows, investigate differences and update assumptions. This can support informed conversations about short-term finance.
Include unpaid purchases, customer invoices awaiting collection and uncertain variable costs. At least at month-end, replace forecasts with actual figures and reconcile the starting cash balance with the bank. Regular updates make the process more useful and easier to maintain.
Nine practical habits
- Question expenditure: ask whether it supports revenue, profitability or an essential business need.
- Avoid unnecessary equipment: buy what operations require rather than impressive gadgets.
- Identify savings: review recurring costs, without cutting spending that supports valuable revenue.
- Use realistic scenarios: include higher costs, slower collections and lower revenue in stress tests.
- Follow overdue payments: act promptly and professionally within agreed terms and legal rules.
- Update regularly: revise sales and cash assumptions as evidence changes; a weekly review is useful for many young businesses.
- Allow for payment delays: avoid making the forecast depend on a few perfectly timed receipts.
- Analyse forecast differences: use actual results to improve the next forecast.
- Look beyond the next month: include larger tax, social-security, debt and investment payments according to their real due dates.
These are general management principles, not a financing offer or personalised financial advice. Contact Maroc Franchise Value to assess the role of franchising in your development project, alongside your accountant and financial advisers.