Cash Flow is a big deal. Everybody wants their business to survive. Everybody wants their business to grow prosperously. 

Cash Flow is vital for your business. Without it, your business is on a one way trip to disaster. In this weeks podcast episode of 'I Hate Numbers' I want to stress the importance of cash flow, discuss what it is and how you successfully manage it in your business. 

The costs of your business need to be met and you need cash for that. Staff must be paid; overheads covered, loans paid, and your need to pay yourself. Those bills and commitments need to be settled in cash, not promises. 

Cash is important

Cash is necessary in any business of any size. If you fail to get adequate cash flow then your business will inevitably fail. A lot of businesses can survive periods of low profit, even losses!. To do that you need access to cash. Strangely enough, profits and cash aren't the same thing, profitable businesses can fail, loss-making businesses can survive. Strange but true  

Cash Flow is the most important aspect of your business. And if you don’t have the right Cash Flow and know how to manage it then your business is done for. Finished. Forecast for the year and amend as you proceed and if you can’t do that then do what you can. 

Cash forecast

Cash Flow is a big deal, and we need to own it, and manage it. You need to create a cash forecast for your business. Look ahead, and think about what your business activity, your business story looks like. Once you’ve got an idea of that then forecast the months ahead based on that future as best you can. 

Three things for your consideration. Firstly, produce a cash forecast then a cash budget, a cash report for your business is finding out the details. Forecasts and projections will detail your story and should be done typically for 3-6 months but preferably 12. 

Your cash future is based on asking three key questions

• What is the future activity that impacts on money in or money out  
• When does that cash event occur, in which month or week  
• How often does that cash event occur

Don't even bother with numbers at this stage. When you figure what your future may look like then translate that activity into a financial number. Once you have a cash story then the power and magic happens. 

In a forever changing world when anything can happen at any given moment you should always plan for contingencies. You never know what's next and one day your business will thank you for it.

In This Episode

• Understanding why Cash Flow is a big deal
• Creating your future Cash Story
• How to put together and manage your future Cash Story
• Developing your own Numbers confidence and decisions
• Take more control of your numbers to help make you money, survive and thrive

Conclusion

Cash Flow is a big deal. Take control and produce and manage your future Cash Flow story. Contact us to find out more.

What Next

Grab a coffee. Make yourself comfortable. Sit back and listen.

I love doing this podcast and sharing my love of Numbers with you. Check out the link to subscribe and do not miss an episode.

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.

Do you want your business to survive? Do you want your business to thrive and grow? Hopefully, I'm getting a resounding yes as I share with you the one thing that guarantees your business survives, thrives and grows. That single thing, that one important element to keep an eye on in your business is cash.

And by cash, I'm referring to the money that flows into your bank account and the money that flows out of your bank account. Hard currency, dollar notes, pound notes, cash is what the name of the game is. It's a depressing statistic that the single biggest reason for failure in business is not competition.

It's not a poor product. It's not customers not buying into you, but it's actually poor cash flow. Very profitable businesses do fail because they run out of cash and don't manage it adequately. In this podcast episode, I'm going to emphasise the importance of cash and why. We are going to talk about cash flow, what it actually refers to, and we're going to share some tips about how you manage the cash flow in your business so your business survives, thrives, and prospers.

Consider your business. Your business has outgoings. It has bills to pay. It has staff that need to be paid their wages. You have loans that need to be serviced. You have overheads. Cash is necessary to settle those bills. On the other side of the coin, we sell goods to customers. We provide services. We give them a period of time to pay for those goods and services, but it's critical that cash needs to come into our business so we can actually service, so we can pay our overheads, pay our bills, and also we can reward ourselves.

Cash is the lifeblood of any business, whether it's a solepreneur business, an acorn-size business, or whether it's a mighty oak of a business. The cash that comes in is required for investment, is required to pay for those overheads, is required to reward yourself, and if you do not have adequate cash flow, if you do not have access to cash flow, then your business will not be around for too long.

Many businesses can survive a period of time without making profit, but you cannot survive if you do not have access to cash and you manage your cash flow adequately. Sales are vanity, profit is reality, and cash is sanity. That holy trinity of sales, profit and cash. So, we recognise that cash is important.

There's no real argument over that one. There's no dispute about the importance of cash flow in your business. The second thing to consider is what do we do about it? And your first major step with this, one thing you do in your business beyond everything else, is you need to put together a cash flow for your business. Now, a cash flow for your business,

more specifically, I'm referring to doing a cash flow forecast for your business. Now, we're not talking crystal-ball gazing. We're not talking about perfectly predicting what's likely to happen in the future. None of us can actually do that. But we're actually saying based on the future, as best we can see it, what's the cash impact on your business?

And there are three essential things that we need to consider. The start point to producing a cash forecast, a cash budget, a cash report for your business is to consider what your business story is. All forecasts, all number of projections start with a story. So, what is the activity that you are likely to be undertaking in your business, typically say for the next three to six months? Ideally,

12 months is preferred, but even if you do three to six months ahead, it's better than doing jack all. Three key components to your business story, your cash story is what, when, and how much. So, the what is, what is likely to happen in the future? The when is the timing? When does it actually occur? And we're thinking cash terms.

When does it hit our bank account? When does it leave the bank account? And the how much translates that activity into a financial number. What, when, and the how much are the three essential building blocks of your cash projection, your cash forecast. Take that what, when and how much, and actually apply it to how you would construct and put together your cash flow forecast. Supply that to the money that comes into your business.

Typically, that money will come from what you are selling to your customers, what you're selling to your clients. So, if you are a product-based company, you are a product-based business, you'll be thinking about what product am I going to sell, for example, in the month of September. What's the credit terms that I give to those customers?

Do I allow them 30 days? So, if I sell in September, I receive the cash in October. How much translates that and puts a number over it. So, typically, if I'm going to be selling a hundred products in the month of September of which each one is priced at 10 pounds, that gives me a thousand pounds worth of income.

If I allow my customers 30 days to pay those bills, then that 1000 pounds actually arrives in the month of October. If I've got monies coming in from perhaps borrowings, from loans, when do I take the loan out? When does that cash hit my bank statement? So, think about all the different sources of where cash comes in, typically from customer sales, from monies that you're borrowing, potentially from grants that you may be accessing, from the sale of surplus assets.

That's all the bundle. So, it's the what, the when and the how much, and position those literally in the month that they occur. Add that now to the money that will leave your business, and by money, we're talking about cash that leaves your bank account, the physical cash that leaves your business. So, the what.

Identify what that could possibly be, and it'll be everything from paying suppliers, from paying staff wages, paying freelancer bills, paying for the cost of utilities, paying for the cost of loans. Doesn't matter what it is. If it has an impact on cash, then you put that item in. So, that's the what. The when. We apply the same logic of timing.

So, when it comes to paying supply bills, if I've procured materials in the month of September, the supplier may give me, or I may take 30 days credit to pay for that particular bill. If I've got staff wages, typically they're paid in the month that those wages and liabilities occur. So, if I've got a member of staff, I've employed them for the month of September, they're expecting to be paid by the end of September.

If not, you are going to have a very disgruntled staff member. Freelancers, likewise. They provide services to you. You get the bill in September. You may not pay their cash until October. If your credit terms are slightly different, then adapt accordingly. Other things like utility bills may be paid by a regular-standing order, a direct debit.

And again, you need to know the when, the timing. The last aspect is the overlay of those numbers. What's the cash equivalent for those outgoings? So, we've got the money coming in, the what, the when, and how much, and we apply the same to the items that we have to pay for. And again, that covers everything from loans, buying one-off purchases, like equipment to regular commitments.

Now, it's worth remembering. Check out some previous podcasts here, by the way, where we've looked at costs in your business. Some of the outgoings will be regular commitments, which are fixed. So, irrespective of how much we sell, those costs will still remain the same. I would also add, there'll be some costs that will fluctuate according to how much we're selling in our business.

So, if we are a product-based business, for example, then how much we buy in terms of materials will depend on how much we're selling. So, link those two together and when you put your forecast together, think of it in those terms. Now, we have money coming in, we have money going out, and that will leave us a surplus or a deficit on a month-by-month basis.

Depending what cash that we begin the month with, tells us how much the cash cushion is and how much cash remains in our bank account at the end of each particular month. Now, my advice would be when you are putting together your cash story, don't edit it as you go along, base your story on the realities of what's going on in your business.

So, if your business is experiencing growth and it requires investment at certain time periods, Put that in. If your story plan is one of tightening the belt, a volatile landscape, reflect what's going on and how you see that future going. Now, here's the power. Once you've done that, you've got a cash story on a month-by-month basis.

There'll be certain months, perhaps that might be very challenging, where you've got cash shortages. There may be certain months where you've got surpluses building up because you've got more cash coming in than you have cash going out. I talked in terms of the importance of cash. I talked in terms of how you put together a cash forecast,

a cash budget if you prefer. And now, a couple of tips here about what do we do armed with that information? Well, one thing we should always do is subject our forecasting, our finger in the air, translate into numbers with a bit of what is called contingency planning or what if, and we ask ourselves that question. What would happen to our cash flow if business sales

declined by 20%? What would happen if certain costs in our business went up by 5%? What would happen if the sales that are anticipating in September, October, et cetera, doesn't materialise until later on in the year? If you build your model correctly, then you can apply those ‘what if’ scenarios to see where you are and that form of contingency planning, that form of what if, that contingency-planning approach is a sign of proactively managing our business as opposed to reacting to circumstances as they occur.

Other things you can do with that cash forecast that you've produced for your business is to look at where there are challenges, there are pressure points on your cash flow, and what can you do to rectify that. Can you challenge those costs? Can you defer the timing? So, something that's to be purchased in the month of October.

Do you actually need to buy it in October? Can you buy it in a later month? Can you look at alternative supplies for what you're buying in? We're not talking a slash and burn policy, but the cash forecast reveals where the strengths are and the areas that you need to look at. Having that in advance of a time period is an absolutely powerful and liberating

thing. What the cash forecast reveals? It may reveal surpluses building up later in your business cycle, which means you may be able to, apart from rewarding yourself better, you may be able to move forward with what you plan to do in your business growth pattern. Cash flow forecasts reveal the reality of what is likely to happen in your business here.

So, you have the choice of hiding under the duvet and avoiding it completely, and therein lies the risk of your business not surviving, or you can grab it by the scruff and actually use that to manage your business. Numbers are the most frightening part of your business, but they're also the most truthful.

They're there in times of uncertainty. They're your best friend in business and they will not lie to you, and you need to harness the power of those numbers in terms of cash forecasting and beyond to actually give yourself the business success that you deserve. To help you with this exercise for your business, I've added a link at the end of the show notes to a guide on cash flow, which gives you some insight to how you proceed and actually put that cash story for your business.

So, in summary, cash is a big deal. No cash, no business. If you don't have adequate cash flow, if you don't manage it, your business is basically screwed. Make sure you put together a cash-budget forecast. The ideal is to look ahead for 12 months and update as you go along. At worst, at least to a three to six month projection.

Do contingency planning. Do what if scenarios on your business, because life never goes as you expect it. And there's one thing that we know about the future. Things take twice as long to get where you want to. Things cost more than you expect, and there will be bumps in the road as you go along. That's enough from me,

folks, for this week. Subscribe to the podcast. Hope you love it. Share it with your friends, families, and colleagues. Until then, ciao. 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.