Okay, I know that you have heard it before but, when it comes to business, CASH REALLY IS KING.
Cash flow can make you or break you. Lack of funds is right up there with the top reasons businesses (small and large) fail. In fact, many profitable businesses are forced to fold due to cash flow issues. Without adequate cash flow, you can’t pay your bills and you can’t make plans for your business. If you are a regular reader, you’ll know I think everyone should be doing this whether they are in business not.
So, what is cash flow planning?
Cash flow planning is simply projecting your future cash incomings (from sales, investments, etc) and comparing them to future cash outgoing needs (wages, suppliers, loan repayments, etc). The difference between cash-in and cash-out is your net cash flow.
Why is it so important?
You won’t last long if you’re operating with negative cash flow. Unfortuantely, business owners who ignore cash flow planning often discover this reality when it is too late! Cash flow planning can preempt financial crisis and help plan purchasing decisions. Is now a good time purchase that new computer system? Or do you need a stategy for impoving sales to avoid a cash deficiency next month?
Where to start?
The first step in planning your cash flow is knowing where you spend your money! Come on, you knew I was going to say that. Clients are always eager to skip over this step but you do yourself no favours by thinking you already know it all “in your head” somewhere. Sorry, but that’s not good enough.
Solopreneurs, in my experience, tend to be most resistant to any kind of serious financial tracking. It’s a shame as the sole professional especially needs to have a firm grasp on both their personal and business spending – after all, business income is usually the main source of personal financial needs (ie. no business revenue = no personal bills get paid).
With this in mind, I’ll be posting a series of articles over the next month dealing with CASH FLOW.
Article by Christie Lewis
Christie is Practice Manager at Alan Lewis Accountants . Besides accounting, her passion is for all things small business (and blogging, of course). You can contact Christie directly at christie@lewistaxation.com.au.
Christie has written 799 awesome articles for us at Alan Lewis Accountants – BLOG
Twitter: @christielewis
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