Cash Flow

Welcome to today’s episode of I Hate Numbers.   When you are in the eye of a financial storm what’s the one major thing that’s going to get your business through it.  That one thing, that protection, that comfort blanket, that financial lifeboat?  Well let me tell you, that one thing is cash, not profits.  Today we’re going to have a look at cash, how to build your own cash story, and connect to your best business friend that won’t lie to you, your Numbers!

Looking at your cash future

None of us have time machines, or crystal balls that are 100% accurate, if you do then drop me a line, I’d love to hear more.  However, not even taking even a peek into your business future may be understandable, but it’s not sensible.   Looking ahead, certainly in number terms is always going to be a challenge.   Figuring out the cash coming in, the cash going out and what you’re left with is what you need to do.  If you don’t do that, then however awesome your business is, it won’t survive and thrive.

What we know, what we think we know, what we don’t know

  Build your future cash story is based on

What we know

What we think we know

What we don’t know

Once you look at things in that way, it all becomes easier

Using your cash forecast

When you have built your cash forecast, take a step back and check out what it’s saying.  Once your see what your Numbers, your best business friend is saying then you can make beautiful and meaningful business decisions.  If some months (or weeks) look tough, then you have options; if things look positive, you have options.

You know only too well that running your business means that there are times we must put those big girl/boy pants on.  Your cashflow forecast, will help you decide when that time is to wear those pants.

What Next

Grab a coffee, keep something stronger to later.  Start looking at your cash future and help navigate your business through choppy waters, and not just when it’s calm and warm.

I love doing this podcast and sharing my love of Numbers with you.  I’d love it if you could help me spread that Number love and share with others.

In This Episode

• Why cash is important for business continuity, and growth
• 
  
• How cash forecasting puts you in the driving seat of your Business
• 
  
• The approach to building your own cash story
• 
  
• Developing your own Numbers confidence and decisions
• 
  
• Take more control of your numbers to help make money

Links

https://podcasts.apple.com/podcast/proactiveresolutionss-podcast/id1500471288

https://play.google.com/music/m/I3pvpztpjvjw6yrw2kctmtyckam?t=I_Hate_Numbers

https://open.spotify.com/show/5lKjqgbYaxnIAoTeK0zins

https://www.stitcher.com/podcast/proactiveresolutionss-podcast

https://tunein.com/podcasts/Business--Economics-Podcasts/I-Hate-Numbers-p1298505/

You are listening to the I Hate Numbers Podcast with Mahmood Reza. The I Hate Numbers podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number love and care is what it's about. Tune in every week. Now, here's your host, Mahmood Reza.

Hi, folks. It's Mahmood here with another episode of I Hate Numbers. Hope your week's gone as well as it can be in these strange i.e. turbulent times here. We've got a slight change in the program for this week. Previously, we talked about the jargon and the buzzwords that finance and accounts people throw all over the place.

We drilled down, we had an expiration of the balance sheet. We looked at some strange terminology coming out of that. Turn it into English, and hopefully we've got to grips with some of those items that float about. I was planning to continue the conversation about buzzwords and keywords and those things that float about, but as I said, you've got, it's been just a mad, crazy week.

Wherever you are in the world, unless you live in Mars, the Covid19, Coronavirus outbreak, whatever you want to call it, has had a massive impact on society. Obviously the sad thing is about deaths, the pass-away, but it's had a dramatic impact on business. My business, my client's business, your business, no doubt here, and it probably feels like you're in the midst of a financial shit storm.

So, what I'm going to talk to you about today is Covid19 has mostly focused people's attention on talking to their best friend in business. The friend that never lies to you. The friend that doesn't tell you lies, and tells you the truth all the time. And that's your numbers and numbers have come into the surface here again, and I'm going to talk to you all about how those numbers are actually going to help you navigate those choppy waters ahead of us.

If there's one thing I've learned that's absolutely critical to your business is yes, make sure you structure your business to make a profit. If you don't structure your business, if you don't do things to actually make a profit at some point, you won't sustain yourself. You won't be able to survive, you won't be able to make an impact, and that's absolutely key.

However, having said that, what we are looking at now is what's going to get us through the next few months, and it's going to impact the old circumstances, going to affect your businesses in various shape. And the one thing that we need to get to grips with over the coming weeks and coming months is cash flow.

Now, cash flow. You think about your bank statement. It could be very depressed at the moment. It could be very buoyant. And we're talking about making sure there's enough coming into the account, enough going out the account to make sure the business stays afloat, and that we're ready to actually take advantage and gear up when things get a little bit less constructive and less turbulent.

Now, if you sit at home thinking, okay, Mahmood, that's brilliant, we don't have a crystal ball. How on Earth can we figure out what's going to happen? You know, the landscape is uncertain. Then, how on Earth do we go about it? I'm going to talk you through a couple of approaches, a couple of tips to how we can convert the choppy and uncertain landscape, figure out a plan where we'd like to be financially, and then we're in a much stronger position to make some key decisions about what we do with that itself.

So, fundamentally, cash is what we need to focus on. If the cash flow is there, your business will survive. If the cash flow is not there, there may be things we can do to try and supplement them, but once the cash runs dry, close the doors. Unfortunately, your business will not survive the storms. Now, businesses are going to be affected

by this outbreak in a number of ways. Some, it won't touch them in relative terms. It'll be quite a minor impact here because their businesses, your businesses may be trading online. Some of you do face-to-face businesses. You've got service businesses, hospitality. Certainly, as far as the UK is concerned, it's a bit like a ghost town in certain areas here.

We've got tumbleweed going around. Hospitality sectors on lockdown. There's a knock-on effect in terms of service-based businesses. So, it is pretty, pretty squeaky bums right now there. I'm not making light of this here by any stretch of the imagination, but again, what we mustn't do is behave like ostriches, stick heads in the sand, and hopefully something will come out of that.

So, we need to take a deep breath. We need to try and center ourselves. Try as far as possible, get some calmness back into our system, and then grab those numbers by the scruff of the neck, and those numbers are going to be your best friend. They're going to be riding shotgun with you as you plough your journey path over the next few weeks.

Now, you're sitting there and you're thinking, okay, Mahmood, how on Earth do we do that? There's no way that I can predict what's going to happen over the next few weeks, few months, with any degree of certainty. So, what's the point of doing it? And you're dead right. Nobody's talking about financial crystal-ball gazing.

We're saying we can do the best we can and there are three things that I'd like us to think in terms of. Number one, let's think about the stuff that we do know. The stuff that we do know with some degree of certainty. So, we do know, for example, what customers, what contracts do we still have going on? So, in terms of what's likely to come through our pipeline: the businesses that we're still going to be offering; if it's online; if it's offline; there may be contracts in place; there may be services.

Businesses do not come to a complete standstill for everybody and again, the activity levels will be fluctuating. So, figure out who you're still delivering work for, who you're still providing services for, who you're still making products for. Who are those customers, and based on conversations that you have with them,

so, yeah, get off the social media if you need to, talk to them, email them, get a contact, get a dialogue going here, and figure out what's needed. Number two, with that is you can figure out what you do know is what's likely to leave your bank account - good old-fashioned costs. So, there are certain costs that you're going to find it very difficult to move away from.

Those costs are committed. So, typically rent, typically subscriptions that you may have, typically contracts that you've got with leasing companies. You may have a certain minimum level of staff that you have, and I'm going to talk to you about what you cut back on towards the end. So, those are your commitments.

If you are afraid of posh word, finance people call those fixed costs. So, even if you have no customers whatsoever, a very depressing thought there, those costs will still be there. So, that's pile number one. What you do know. The second thing to consider is what you think you know. So, what's actually coming through inquiries? What's coming off your website?

What's coming through in terms of people ringing you up? What are those businesses still coming through that are hot leads, inquiries? What's the likelihood based on your conversations, based on your experience, based on your gut, what is likely to translate into some degree of business? And again, typically I would suggest for the terms of planning to maintain continuity, look at a short time frame of up to six months

ideally if you think you can look beyond that time frame. Look at the costs. So, if you take on more business, so if you're a restauranteur, you think you're going to deliver more food to customers, then those costs are likely to go up in terms of the cost of buying in food. That's your second pile. The third pile is the stuff you have no idea about.

And with that, don't waste too much gray space, gray matter. Don't overthink it there as well. What you don't know isn't worth thinking about at this stage of the game, because, therefore, put that to one side. Once you describe what you think is, you know, what you do know is going to happen, put some numbers with it as well, and consider the value of what comes in and when it's going to come in.

So, timing is key. Think about the value of what's going to leave your business and when it's going to leave. And typically, when we construct a cash flow, we answer three questions. How much physical, cold, hard money is coming into your bank account? When does it happen, how often, and at what point in time? Some of these outgoings may be regular once a month, some of them may be literally every quarter.

The difference between those two things is how much the cash flow will be. So, if I'm likely to have a couple of grand, 2,000 pounds coming in in one month, and I'm going to have to meet obligations with 3,000 pounds, there's a shortfall of a thousand pounds. The last couple of things to consider is how much money do you actually have in the bank account to begin with

if anything. Once you take into account how much you start with, you know how much you land with. Now, at this stage, don't be scared. Don't be frightened. Don't start getting anxious. Be realistic. Take a deep breath and plough through that story. Take a step back. Go and grab yourself a coffee. Have a stiff drink.

Don't make it too stiff because we've still got a bit of work to be doing. Have a look at your cash flow and you'll see on a month by month basis what your cash position will be. If it's positive, great. Bit of comfort there. Make sure you also factor in what you need to draw out of your business to sustain yourself as well.

If there's a shortfall, and actually you are going to be overdrawn. If it's within your overdraft limits, a bit of a sigh of relief. If it's closer to overdraft limits or it's slightly to go over at some point, then don't worry. Don't panic. Once you know the pattern of cash flow, this is where the real power comes in. Then, you can make decisions.

So, in one particular month, if the cash is very tight and you've got more going out than coming in, then you can ask and have conversations with yourself, your colleagues, your suppliers, and the bank. Are there costs that are absolutely, can be delayed perhaps without impacting on the business ability?

Are there things that you do need that you can delay buying? So, if there's a piece of equipment you factored in, is it critical to buy it in one month? Can you delay that? Are there different ways to shape the payment? So, instead of buying it outright, can you consider potentially renting it, leasing it?

Also look to see where there's any slack. So, are there items in there which are really nice to have, but actually they're not critical for your business continuity for the next few months? If you've got bills, obligations to pay, you've got monies owed to the authorities for tax, then you know, are there things you can do to contact them and delay the payments of those obligations,

of those debts? If you've got a shortfall, once you've had those conversations, thinking, I can do all these various things like talking to banks, talking to suppliers, and one thing I would emphasise, if you are going to take any action of a slash and burn, think carefully, and I'll share that with you in a moment or two.

Once that's done, you've got a clearer idea of what the future may look like in terms of what you do know, what you think you know. What you don't know is not worth thinking about in the early stages. Make decisions based on that. Cutting back, injecting more funds in, looking around to see where those funds are.

Do not make decisions until you've actually figured out what the cash plans are. Now, a word, a caveat, a word of warning. When things are turbulent, when things are very uncertain and volatile, there is a tendency to panic, and I understand that. I'm in the same position. There's a lot of businesses out there.

We've lost business. We'll gain it eventually here, but you've got to remember at some point when the storm clouds pass and things become a little bit more established and calmer, your business still needs to be there and solid, fit for purpose to continue. So, when you slash and burn, potentially cutting back on marketing, cutting back on training, cutting back on investments, ask yourself a question, does that mean it's going to impact on the future prosperity of my business?

You may find items in there by the way that you're overbuying you don't actually need. So, it's a good housekeeping exercise. Now fundamentally, everyone, don't look at this business finance discipline purely just because we've got a viral outbreak around the world and it's impacting businesses like a very bad cold.

Look at it as a business discipline that should continue irrespective. Your numbers are there. Your best friend in times of calamity and fear, in times of calm, and in times of prosperity, your numbers will always be your best friend to guide you for whatever path you've got. This is Mahmood here wishing you well, wishing you fortitude.

Grab those numbers. Make them work for you. Tell that business story here. If you like the past podcasts, which I hope you do, guys, give it a share, give it a thumbs up. If you think people will benefit from this, share away. If there are any thoughts you've got on the show, obviously I'm more than happy to hear those brickbats and all.

Apologies if it's not quite the polished version, but you know the content's there, check out the website. We've got some tools, resources here. We've got some tips to help you. So, we've got you covered. Keep it going. Hold your nerve, carry on, and I'll speak you guys next week. We hope you enjoyed this episode and appreciate you taking the time to listen to the show.

We hope you got some value. If you did, then we'd love it if you shared the episode. We look forward to you joining us next week for another I Hate Numbers episode.