Yes, Bad Cash Flow is killing businesses worldwide – merciless and taking no prisoners.
80-90% of small businesses fall victim to bad cash flow. It wrings the lifeblood out of most businesses. Start-up or established business. Many fall victim to this (avoidable) malaise.
Some say it an Art to balance your cash going out with the amount of cash coming in. Well, it is not.
Why is this business killer so prolific?
It happens for TWO REASONS:
First. Businesses run out of money because they struggle to find a viable business model.
Simply, the business does not make enough money. Not generating sufficient revenue.
Second. Businesses run out of money because they don’t plan their cash flows.
Cash flow forecasting is the elixir to business survival. Essential like breathing for humans.
I am a strong believer in a rolling 12 months cash flow forecast. Perhaps even 18-24 months. And I still have a preference using the old Excel spreadsheet method.
Because it forces one to think and manually enter every possible future transaction: revenue, expense, tax.
Simple is Best
Don’t get fancy. Keep it simple and meaningful to You. Itemise revenue, expenses and tax. Be conservative and start thinking how revenue, expenses and tax will fall in future. Do use history as a base but don’t rely too much on it.
Review, review, review
Because cash flow forecasting is so vital go over it again, and again. Test assumptions and review with someone you trust: Mentor, another business manager, your accountant or bank manger.
Don’t be upset if someone points out flaws in your forecast.
More importantly, you’ll also get an idea of how much cash your business is going to require over the next year or so to survive.
Cash flow forecasting is also useful for decision regarding the next capital project. Growing usually requires investment.
Benefit of cash flow forecasting
I always expel a sigh of relief if a client of mine show me their cash flow. Then I know they have a basis for getting stuck in and improve their business to another level.
(Good) cash flow planning ensures survival of the business. It also puts the business in good stead with attracting investment or joint venture partners.