Cashflow Forecasting

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.

 

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A Bit On The Side

A Bit on the Side

No, not what you’re thinking, I’m talking about the Side Gig, Side Hustle, Moonlighting, Homers, whatever you want to call it, it can be a very good idea.

Initially I built up my accounts practice on the side of my day job before leaving that job to grow my business full time.

More and more people are moonlighting on the side of their day job – so why is this such a good idea?

Test the waters

If you eventually want your side job to become your full time job, growing it on the side gives you time to test the waters, experiment and learn.  It lets you try out different strategies to see what works and allows you to fail, all whilst keeping the financial security of your day job.

Not having to rely on your side gig for income allows you to focus on the long term success rather than short term income.

Extra Income

You’ll no doubt make some money from your side gig to compliment your full time income.  Whether you use this extra income to grow the business, save or dig yourself out of debt is up to you but the extra cash will always be nice.

Cash lets you fund your own start up or take a pay cut when you eventually want/need to ditch the full time job and make your side job the full timer.

Money can make you feel that you have options, that you have some backup, that you can afford to fail.  In other words it makes you feel safe, and if you feel safe you are more likely to take the small risks necessary to start up.

What to do

You need to establish what your side gig is going to be – what are you good at, what do you know how to do, what would you like to do, what would others pay you to do.

Getting started

Once you’ve decided what you are going to do you need to work out how you are going to get clients/customers.  How are you going to get the word out about what you are doing and what platforms are you going to use to do this.

Keeping it going

Office management – even if your side job is something low tech such as dog walking, don’t think you don’t need to get involved in office management.

A side gig doesn’t have to be about money.  It can be for fun, to gain experience or self education.   However, if money is the main objective you need to take it seriously.  Dealing with administrative tasks, paperwork, income, expenses, taxes and marketing all need to be done.  If you are making money you have a legal obligation to declare this for tax which requires some record keeping.

Stay Organised

If you’re working 9–5 and then moonlighting on the side, you are going to be busy.  You must stay on top of the admin and if you are making money you need to stay on top of the finances.  Keep track of all income, expenses, bank and paypal accounts.  You may need to develop systems for tracking this, customer/client relationship management and other items relevant to your line of work.  These systems can be anything from notebook scribbles or spreadsheets to specialised software.  The more you have going on, the more you need to attend to these back office tasks.

Word of warning

If your side gig is something that could tread on the toes of your full time employers business, you should get their permission first as there may be clauses in your employment contract to stop employees setting up in competition against them or stealing their clients.

Photo Credit: Splitshire.com

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