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Why do a cash flow.

12th April 2012

How often have I heard people say “I don’t need to do a cash flow because my business is different!” or, “There’s not really any point in doing a cash flow because it is too difficult to predict what will happen in my market!”? But, in reality there are so many good reasons for doing cash flows, that I am quick to put them straight on their opinion.

As no doubt I have said before, the real reason most people don’t do cash flows is because they don’t know how to, so they use one of the statements above as an excuse to avoid writing them. However, for those of you who are still sceptical, let me give you some food for thought.

First and foremost doing a cash flow with forecasted sales targets gives you something to aim for. Of course the targets should be in line with your overall end goals, and they should be stretching but not unachievable. The sales targets need to be made clear to all the team, so that everyone can celebrate the successes, and strive for greater things. Of course I can accept that forecasts are just that, but I can assure you, if you write these figures down, you have a lot more chance of hitting them, than if you just think about it.

Secondly a cash flow allows you to plan for capital expenditure and/or employment of new staff as you grow. Once you have set your sales targets for planned growth, you can then work out when you can afford to pay for new and improved pieces of equipment, or new staff to ease the workload.

Thirdly you can plan your marketing strategy and marketing spend against your sales targets. By working out your clear target market niches, you can then plan how you intend to market to them. This in turn allows you to budget for the expenses incurred.

Fourthly, once you have done your cash flow (or cash flows if you want to look at different scenarios) you can see if there are likely to be any negative months, and if so will you need a bank loan or an extended overdraft facility. If you can present well thought out and logical figures to your bank well in advance of the potential problem times, they are far more likely to help you out.

Finally it gives you control. All too often I work with business owners who have little to no control over their money. As the business grows, and you have less detailed knowledge of some of the expenditure, it is important to be able to check your actual figures against your budgets, so you can quickly see if things are going as you expect, or if there are problems or things not going to plan.

So I hope I have convinced you about how important doing cash flows can be. If you’re not sure how to do one, give me a call.


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