BY: Craftsolutions
Are You For Real? Predict Cash Flow?
I never heard of anybody being able to predict cash flow! Hell, if anybody could do it, they would be a gazillionaire.
Well…, objection your honor! On the grounds of this way of thinking being a killer for any business that wants to live past its first birthday.
I Can’t Even Predict What Customers Will Pay Today!
This is very true. And no one can be 100% certain what money they will see coming in today, tomorrow or in 6 months’ time. Predicting cash flow is not an exact science and it will never be. That is unless humankind finally learns how to travel back from the future.
But predicting cash flow doesn’t need to be an exact science. It only has to be precise enough to give business owners and managers a heads up about any cash shortages that might lie around the corner. It is used to give them sufficient time to react before disaster has time to strike.
But I Can Simply Delay Payments
Running an accurate and consistent cash flow projection process is not easy. A lot of knowledge and discipline is required. So is this trouble really worth it? Why can’t you just delay payments if you ever run short of cash?
Of course, this is an option, but it is not a healthy one. You can play only play for so long with suppliers’ money. They will report your payment delays, reducing your credit score, and at some point down the road, they will stop supplying you entirely. This can make your business disappear faster than you can say “cash”!
Doesn’t Profit Come Before Cash?
The one and only answer is NO! Cash is the most important thing your business absolutely cannot exist without. Your business has to have sufficient cash to fund its operations every minute of every day. Or it simply goes under.
“Entrepreneurs believe that profit is what matters most in a new enterprise. But profit is secondary. Cash flow matters most.”
– Peter Drucker, Management Consultant
I am sure you’ve heard all about the notoriously disruptive, hugely loss-making and cash guzzling wonder businesses like Uber, Amazon (in its early years), Glovo and the like. These guys are or were making incredible quarterly losses because they are so heavily investing to be able to disrupt traditional industries. But there is one thing they have plenty of, coming to them from all directions: Cash.
A Cash Plan Puts You At The Helm
If you run your business without having an accurate and regularly updated cash flow forecast, you are basically not the one running the show. Chance is. It doesn’t matter how much cash you have today in your bank account, without a cash flow projection there is no way to make sure your business stays afloat.
“The three most dreaded words in the English language are ‘negative cash flow’.“
– David Tang, Founder, Shanghai Tang Fashion Chain
Throughout history, the lack of healthy cash flow management has sent too many otherwise very successful businesses to an early grave. Don’t make the same mistake and ignore this huge threat lurking in the dark. Be prepared instead to face it successfully.
Be In Full Control Over The Health Of Your Business
A cash flow projection gives you a huge advantage and puts you miles ahead of your competition because this is one of the most ignored areas in business. Owners and managers just seem to believe that cash will work itself out somehow and they don’t need to control it tightly.
Planning for cash helps you predict and monitor all cash coming in and flowing out of your business. It also helps you know exactly where your money is coming from (i.e. who is paying and who is not) and where it goes towards (i.e. where you are spending it).
Your Cash Plan Guides Your Business
If you have a cash plan which you trust, it allows you to strategically plan the future of your business. It allows you to literally see into its future. Now in my book, this is priceless!
The deep insight you get into your cash flow allows you to make extremely well-informed decisions about what credit terms you can afford to offer your customers, during those tight negotiations. This gives you the necessary edge to win in front of your competition.
Having a clear picture of your future cash flow, allows you to make strategic decisions about when to take loans, how much you can increase salaries or start that long-awaited investment project which will increase your capacity.
Conclusion
To make sure your business is a true success, don’t hide away from managing your cash. Don’t stick your head into the sand when it comes to predicting the most important thing which is keeping your business alive.
Build a proper process around analyzing and predicting cash flow. You should refresh your cash flow projection at least every month. The best way to do it is to deploy automated tools to help you confidently and cost-efficiently manage this super important area of your business. Don’t delay it, don’t procrastinate, do it now before it’s too late.
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Why Bother With Managing Your Finances?