Well, maybe not a crystal ball as such, but certainly looking into the future and thinking about what you want it to look like will.
Whilst you may feel that you can’t control your cash flow, to some extent you can if you know what’s likely to happen in the coming days, weeks and months. Business can be hard enough without the added stress and worry about your cash flow. Have you ever thought how nice it would be if you had enough money in the bank that you could do what you love in your business knowing that the bills will be paid?
I remember in my previous business where I was in that position, always worrying whether I’d have the money in the bank to pay the wages and the rent and then the dreaded Business Activity Statement (BAS) bill would come around with alarming regularity to add to the stress.
When I had a forward cash flow plan in place, I felt in control; when I didn’t, I stressed out about it.
Often people come to me in this same position of stress and worry. A few months ago, John asked for help. He had no idea exactly who he owed money to or how much. He simply paid whoever chased him for payment when he could. He told me that he would check his bank balance a few times a day to see if some money had miraculously appeared in it so he could pay another bill and get one harassing phone caller off his back.
John was a consultant with a number of employees. The business did big project work that often took many months of full-time work for his entire team. One of his challenges was having a pipeline of work, such that when one project finished, another one would be ready to start. Yes, a juggle at the best of times.
Over-riding all of this was that John found himself continuing to fund the business to cover the shortfall. He was in negotiations for another project and had employed a few more team members to deliver the project, but he didn’t have it signed off. He was haemorrhaging money at a great rate of knots but overall had no idea where he was at financially.
After reviewing the history, identifying the outstanding bills as best we could from the fragmented information that was available, we were able to prepare a future cash flow forecast. It wasn’t pretty. What it showed loud and clear was the need for John to land that new project and fast.
It also showed him exactly how much it was costing him to run the business each month and thus the income needed to keep the business going without him having to put his own funds in to prop it up.
Whilst the wake-up call for John was both necessary, and a bit of a shock, the biggest benefit of planning and forecasting your cash flow is identifying how much income you need to cover your expenses and payments.
When you plan what the future cash flow might look like, you’re gazing into your own personal crystal ball and seeing both the good and the not so good. Armed with this knowledge you can then focus on the actions needed to improve the cash flow into the future.