There is lots of talk from experts and opinion forums about what is the key formula to start-up success and we believe it starts from and ties together into just one thing: a cash flow forecast.
Not just having one, but using it on a regular basis to navigate disasters, make better business decisions and reduce the risk of failure.
The key to success
The key to success in any business is understanding the numbers; break-even point, operating cash flow levels, profit margins, conversion rates and so on.
We recently produced a video explaining the 5 numbers your business needs you to know and what the formula is for using them to make more money.
But, having identified these numbers and put the equation into practise, how do you manage your business on a day to day basis? This is where a cash flow forecast becomes invaluable.
Understanding and monitoring the cash coming into, and going out of, your business gives you a clear picture of how your business is performing.
- Could the business cope if key staff left?
- How would a recession effect your business?
- What would happen if supplier payment terms changed?
- How would your business be able to deal with a big order coming in?
All of these questions and many more can be answer by looking at an up-to-date cash flow forecast which can be easily manipulated.
When situation similar to those listed above occur, you will need to make managerial decisions which will have an impact on your businesses cash flow, positive or negative. Would it be good to know what that impact looks like before you make the decision? This is exact what a cash flow forecast is for.
The key performance indicator
Without a cash flow forecast you will struggle to know how your business is performing. Whether it is in a strong financial situation that could cope with a sudden and unexpected expense successfully or finance your growth strategy.
Equally, without a cash flow forecast you can’t see the potentially poor state your cash flow is in. This could mean there is very little room for error and that there could be potentially difficult and stressful decisions to be made about reducing overheads such as staffing levels.
Having a cash flow forecast allows you to see, at the click of a button, how your business is performing and potentially, where things could be improved.
Imagine what you could do with a crystal ball…well our cash flow forecasting tool allows you to see the effects of different decisions and situations on your cash flow without risking a penny.
Being able to forecast different decisions means you can see into the future of your cash flow and make informed decisions about how to run your business without taking the risk of making the decisions and waiting to find out if it is going to leave you broke.
There is no limit to the number of different scenarios you can run with our forecasting software which shows you your new break-even point, profit margins and cash flow for all of the scenarios you want to run. All without risking a penny.
Avoid the potholes
On a basic level, a cash flow forecast clearly shows you how your cash flow is going to perform in the coming months based on the incoming and outgoing cash flow remaining static. However, as this is rarely the case, our cash flow forecasting tool encourages you to look into the future of your business and plot potential problems to see what the outcome might be.
For example, if a supplier suddenly went out of business and you had to quickly use another with higher prices or different payment terms. Both of these factors would be unforeseen but using your cash flow forecast you can easily see whether your business’s cash flow can support this emergency measure whilst a like-for-like replacement supplier can be found. It would even tell you how long your business could realistically sustain this increase in outgoing cash.
Another example could be that a key member of staff leaves without warning and you have a big order to fulfil. How much can you afford to pay a temporary member of staff to get the order completed and how long can you afford to be without that member of staff for? Using your cash flow forecast, you can answer both of these questions with ease and confidence.
Where is your cash flow forecast?
In summary, we believe, having worked with entrepreneurs, start-ups and micro-businesses for more than ten years, we understand how important it is to really understand the financial make-up of your business. Looking forward with a forecasting tool you can manipulate easily is an essential part of reducing the risk of decision making and a proactive way to manage a successful and growing business.
Try our forecasting tool FREE today and see what you could be missing out on.