Want More Profit? View Your Cash Flow Forecast with Your Sales Pipeline
If I handed you a set of coordinates and told you to drive to a specific address, you would probably need to gather more information about how best to navigate. Perhaps you’d open a paper map, use the internet or plug in the coordinates to your GPS for a turn-by-turn approach.
At any rate, you’d take the goal (the coordinates) and plot it on the topography of the area in order to find the fastest and easiest route to your destination. Using a real-time app can even help you manage obstacles, traffic flow and detours to your best advantage.
Mapping Your Small Business Cash Flow
If you’ve ever envied management teams that seem to be guided down the path to profit mostly by intuition, you’re not alone. 64% of small business owners consider financial management a priority — but many aren’t sure how to put a plan into action. The Dryrun team would like to share one critical technique about how planning, not intuition is the key. Ready?
Successful businesses map their sales pipeline on a calendar, alongside their cash forecast, so that they can predict their income and expenditures for the immediate future as well as several months out. Looking at your cash flow alongside your sales pipeline offers a complete picture and gives you the ability to plan and react.
Viewing a list of potential projects is a great way to observe how much money is going to come through the door of your small business in the coming months, but is simply not enough information to help you leverage business advantages and avoid pitfalls.
Much like the coordinates example above, you need to tap into additional information sources and create a rich map that makes it easy to understand which next steps your business should take toward its goals.
View Your Cash Flow Alongside Your Sales Pipeline
To start, understand that both concepts — sales pipeline and cash flow — are ways to visualize hidden business processes and make them transparent, measurable and accountable for a business’ benefit.
A sales pipeline is a way to examine the potential deals your sales and business development teams are working on. Understanding the value of each deal, its timeline and when the deal could potentially close helps your team understand how much money future sales may bring in, and when that money will actually come into the business as cash flow. It also outlines other useful pieces of information like how many deals your team is pitching, and on average, how many they close.
Cash flow forecasting is another highly visual process that maps dollar figures for your income and expenses against a timeline. Using a forecasting tool like Dryrun (so easy!) allows small businesses to not only plot out their current and historic cash flow, but forecast scenarios to match a variety of circumstances, then analyze which ones are the most likely to occur.
Every business has a flow of income and expenses (cash flow) and every business needs to find new work (sales pipeline). Cash flow and sales pipeline are indisputably present in every business; taking the time to measure them is the difference between steady profitability and possible failure.
Often, time and resource-scarce small businesses don’t implement or even fully visualize systems before they are absolutely required, a critical mistake both in bringing revenue through the door and managing it well. Measurement is the key to getting a handle on your business’ future. Used together, analyzing sales pipeline and cash flow forecast helps your business:
Once you get started, the process is addictive! Don’t get bogged down if your pipeline or cash flow forecasts need fine-tuning — both are working documents and new data is available to refine your projections regularly. It’s important to visit them regularly rather than try to create the perfect scenario.
The Big Advantage:
While roughing-in a project’s end date is important, plotting when jobs start is critical for asking questions like, “Do we need more capacity to meet client need?”
Long-term cash flow is the goal! If you know your capacity at present, and anticipate future crunches after you map it out, viewing your sales pipeline and cash flow forecast will allow you to direct some of your projects in the pipeline to start earlier, or finish earlier.
With an accurate forecast, you can even offer early-start incentives to clients in the pipeline to direct a project schedule that works for your team and cash flow situation.
Sometimes it’s impossible to backfill downtime with smaller projects, but team members still need to be paid during downtime. Plan to wedge in support tasks to maximize time between projects. Look to necessary or optional training, administrative tasks, procedural or team building tasks, scoping and networking, equipment acquisition and planned vacations.
Sales Pipeline and Cash Flow — Together at Last!