For every business, regardless of what stage you are in, money and financial security are always top of mind. More businesses fail not because of a bad idea or a poor product, but because of money. A lack of money, that is.
Put simply, the issue is cash flow.
Money coming in needs to be greater than money going out. Sounds easy enough, right? Well, it is, but unfortunately, this is one of the major challenges that many businesses face and tend to mismanage. But if you can get it right, it will have a great impact on your immediate financial viability and keep you around for the long term.
Now, the business needs to create enough net money to stay afloat. You can easily analyze this vital information in your cash flow budget. It never ceases to amaze me, though, how very few businesses have a cash flow budget. It is a useful and essential tool in managing and running your business. It should be actively used, and understood. Ultimately it will help you monitor and manage the financial cycle that your business operates in. It keeps you focused, in touch and helps you foresee and make decisions in advance of cash flow shortages. It’s a no-brainer in my books.
There are many cash flow budget tools available. So that’s not a concern. The problem comes for most when putting in the numbers. Forecasting, measuring, etc is not an easy science. Often, you’re relying on estimated figures to predict peaks and troughs as well as determine the bank balance at the end of each month. So if this isn’t your thing, get help. Your accountant is a good place to start.
You cannot afford to put this in the too-hard basket.
Too many small businesses turn to the balance on their bank statement to gauge the financial health of their business. Not only can this provide a false overview of your true financial position, but it also puts you in a reactive state.
Cloud computing has revolutionized small business management, providing access to real-time, up-to-date financial data.
This means there is no real excuse for not having current information so you can compare your actual cash flow to your budget, and make timely decisions accordingly. Keep in mind that your bookkeeping plays an important role in timeliness and accuracy. You are at a great disadvantage if you are not having your bookkeeping performed at regular intervals.
One thing I am sure of is that the results from your cash flow budget won’t be exact. What happens, in reality, will differ from your budget. There are many influences outside of your control, but the point is to forecast and predict. An active cash flow budget makes you plan, revise and work on making sure you’ll have enough money. You are now being proactive, rather than “crossing your fingers and hoping”.
For any assistance with creating or monitoring your cash flow forecast, contact MBC on 6362 0988.