It seems like a simple premise – make sure you have cash in your business to keep you going in the tough times, or when you have big expenses like tax going out. Having simple forward looking cashflow measures in your business is like having a fuel gauge in your car. But for around 50% of Aussie & Kiwi small businesses, cashflow is not even measured – but we know that for more than 60% of us it is a constant pressure (Source: MYOB Business Monitor) I was checking out some business stats recently – and apparently 80% of business that fail, where actually profitable – it was just bad cashflow that took them down.
So, here is a really quick way to work out if you have sufficient cashflow measures in your business. Can you answer the following 2 questions in under 5 minutes?
“What is your current cash position (how much money do you have in your bank account now)”
“What does your cash position (how much money will you need to have in your bank account) need to be at 31 October 2010”
The idea is for you to know in the future when you might not have enough money to pay your bills or employees – or perhaps when you should not draw a dividend of take money out of the business. For example, you might know your business is generally slow in November and December – but you will have some staff bonuses and big tax payments to make then and you probably won’t have enough cash to pay all your bills. With this sort of planning, you can have a chat with your bank about a temporary load or overdraft – or you might start putting money aside. The idea is you’ll have enough cash to fuel you business in the lean times.
Cashflow forecasts can be really simple – some use a basic spreadsheet, others prefer using a computerised accounting solution. You can do it yourself, or have your accountant or bookkeeper help you – the key is to actually do it.
So if you couldn’t answer my questions above – you might like to check out these links. Here is a 6 min video of a seminar I did last year on “Cashflow as a fuel gauge” or check out this great advice from The Small Business Company with excellent tips on how to unlock cash flow and how to keep track of your cash flow.
What do you think? If you’ve got any great cashflow tips, I’d love to hear them!