You have read it many times!
Many articles and books have been written on cash flow a thousand times. A business consultant will not get tired of writing and educating on cash flow.
Cash flow can make or even break your small business. Lack of cash flow preparation will be the reason why most companies fail.
Many profitable business owners fail due to cash flow problems. Without sufficient cash flow, you cannot pay the bills of your small business, and you cannot make plans for your business.
What is Cash Flow Planning?
So what’s Cash Flow planning?
Cash flow preparation is projecting your potential cash inflows from loans, services, and sales, and comparing them to the future cash outflows of your business (suppliers, taxes, loan payments, salaries/wages, overheads expenses, etc.)
The difference between the 2 is the net cash flow of your business.
Why is cash flow planning very critical?
Cash flow planning can help you to recognize issues down the ‘business road’ and heal them before they happen.
Cash flow preparation could also enable you to make choices like:
- Must I reduce sales by how many percent more than the competitor price to be able to sell?
- What’s is my selling price.
- What is the best price to sell that may not affect my profit?
- What is my break-even points?
- Must I reduce sales or increase sales?
- Must I embark on expansion now or in the 2nd year?
- Must I purchase pool cars?
- How much percentage increase in the purchase cost will affect my selling price?
- How much will my small business share profit to be put back into the business?
Monitoring Your Spending
Solo business owners have to get an excellent grip on both their private and business spending because so many solo business owners depend on their income to meet up with personal finance objectives (i.e., rent, bills, family expenses).
Thus, you need to monitor both your personal and your business spending, though I recommend you read this ”In 10 minutes I will give you the truth about how to avoid stealing from your pocket.”
What is the best way to observe your spending?
You can use paper and pen, spreadsheets, or maybe a software program. The very best means for you is the technique that you’ll use on a consistent schedule.
You need to project your spending for around the next twelve months, so you include things like annual and other regular expenses.
In case you’re going through cash flow problems, you need to monitor & project the cash flow every week rather than monthly or Quarterly.
Review Following Year’s Revenue
If perhaps you’re an existing company, you can project the cash flow for the following year by reviewing the previous period expenses.
Calculate Start-Up Bills and Spending
If perhaps you’re a brand new business, you are going to need to calculate your start-up bills in addition to regular operating expenses.
|1ST QUARTER||2ND QUARTER||3RD QUARTER||4TH QUARTER|
|Additional Reverse Osmosis Machine||1,300,000|
|Delivery Vehicles (3)||9,000,000|
|Subcontracting to Logistics Company||1,000,000|
|Additional Power Generator (60KVA)||3,100,000|
|Dispenser Bottling Line||2,500,000|
|Nafdac Certification for Dispenser Line||500,000|
|Cash Inflow from sales revenue||–||4,212,000||4,234,500||8,514,000|
|Direct cost outflow||–||3,758,256||3,744,936||6,279,666|
|Direct Expenses outflow||543,700||543,700||613,900||754,300|
|NET CASH INFLOW||12,333,993|
Startup expenses include listing, legitimate costs, marketing, licenses & permits, provides, along with many additional fees you might not have considered.
Improving Your Cash Flow
To improve your cash flow of, you should:
- You’ve to analyze Cash Flow Strategies for the One-Person Business and estimate your future spending requirements before you can enhance your cash flow.
- Create worst-case scenarios and make proper reactions to both situations. For instance, in case the worst-case scenario is reducing sales by 30 %, how will it affect the profit? Will you reinvest the earnings back into the organization by investing in new assets?
- If the worst-case scenario is a fall in sales by 40 %, how are you going to carry on and deal with your month-to-month expenses? By planning for the worst-case scenarios, you will be all set for just about any situation.
- When estimating your future income, realize that some individuals will pay late, and also account for that very fact in your projection.
- Charge what you are well worth. Lots of businesses, specifically service professionals, under charge when they’re starting. This’s an excellent way to go about business. Ensure you’re charging what you are worth, and also remember you are in business to make money, not to provide your experience away at no cost.
- Do not hire until necessary. Consider using temporary employees or a Virtual Assistant because they can grow your business.
- Update your cash flow regularly. Your cash flow plan is going to change frequently as your small business grows. You might wish to upgrade the cash flow weekly when you start, then switch to a monthly plan once you have a good handle on your cash flow.
Remember – whether you’re a new or even a growing company, cash flow projection can make the big difference between failure and success.
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