Anyone who has ever studied anything to do with business will probably have heard the saying ‘Turnover is vanity, profit is sanity but cashflow is king’. This saying is very true and poor cashflow management is the number one reason why over 50% of British startup businesses fail within the first 5 years.
It doesn’t matter how great your turnover is, how amazing your are at what you do, how brilliant your ideas are, if you haven’t got the money in your business to pay your suppliers, rent, staff etc you are going to fail.
So what is cashflow – it’s ensuring the amount of money coming in to your business is greater than the amount of money going out. In business, as in personal life too, this needs to be monitored constantly so you can plan ahead for any shortfalls.
Having to rely on overdrafts and credit cards can lead to large charges making cashflow worse and an ever increasing downward cycle is created.
You need to pay particular attention to cashflow before any large purchases are made or new ventures entered in to.
Having a contingency fund (savings) of one months expenses will help ease cashflow when unexpected costs arise or money due in is late.
Don’t take it for granted that you will be paid on time. Be very proactive when it comes to chasing money you are owed. If possible have a contract or ‘terms of business’ with every customer detailing when payment is due.
Allow for fluctuations in income, do you close for Christmas, is your business seasonal.
Ensure you have good relationships with suppliers and financiers as they could help when your cashflow runs into problems.
The Cashflow Forecast
This is nothing more than a simple list but the more complex your business, the more complex your cashflow forecast will need to be.
Across the top will be 2 columns for each month (or week if needed). One column for forecast and one for actual so you can compare results.
At the side you will have a row for each item of income and then each item of expenditure.
You can find many examples of cashflow forecasts on Google to give you an idea. We can help set up a spreadsheet to do this for you but when it comes to applying the figures, you as the business owner are best placed to forecast your figures.
Behind the Calculator 