The Quickest Business Cash flow Forecast for People that Hate Finances

As small business owners we fixate on profit and loss reports, or income and expense tracking. It is the standard for letting us know how well we are doing?

If we sold more than we bought we have a profit, happy days! If we spent more than we made, it’s a loss. Time for a stiff drink, ice-cream or questioning whether we are “cut out to be an entrepreneur”

Yes, keeping an eye on your profit versus your losses is key. However, if you track only that, you miss out on the really important metric, the state of your cash flow.

I know you have heard this all before, but I bet there is a chance if you are reading this, that though you know you need to understand the cashflow side of things, it seems like a lot of work. Plus your bank account tells you what you need to know. Wrong. Your bank balance, just like your profit and loss report is a snapshot in time. Also it only shows activity, not liability.

Let me explain. What you need is an understanding of how your money moves over a period of time. What you are looking for is whether or not money will be there when you need it. It is as simple as that.

Unless you are a cash only business, your money undertakes a journey from the time it is a sale that appears on your profit and loss statement, to the time you receive it as hard cash.

On the other side, if you have supplier bills to pay, you have money leaving you at the same time. Like ships in the night

The skill with cashflow is managing the amount and timing of money as it goes in and out. I call it the “financial blur”. Businesses that last the distance are ones that are good at slowing down the blur, so they can see what is happening and make the necessary adjustments.

So how do you do it? To start with you don’t need any apps or spreadsheets, this is merely to get you to focus on a metric.

  1. Get a pen, paper and calculator
  2. Make a note of the money available in your bank today
  3. List the sales or money you are due to receive in the next 7 days
  4. List the bills or money you are to due pay out in the next 7 days.

Don’t forget to include direct debits, standing orders, loan payments, credit or debit card payments. (These are the liabilities that I mentioned earlier. None of them appear on your profit and loss, so when you do your report, they are missing, and you think you have more money to play with than you do)

5. Add up the total sales and add the amount to money in your bank.

6. Add up the total expenses and then, then minus that amount from the figure you got in step 5.

Cash in bank + Money due in 7 days — Money out in 7 Days

At the end of the 7 days will you either have money left over or will you have less than you need.

If you are facing financial problems you probably do this exercise every day, looking for an answer to your prayers. But if not, it is a good way to focus your mind on potential cash problems before they arise.

I appreciate that this is not an exact science. You may have the bulk of your expenses at the beginning of the month, so that week looks bad, but it evens out over the rest of the month. But some people don’t even really know that. They are doing so much by the seat of their pants that they don’t have time to analyse.

By narrowing things down to 7 day increments, you get to see what is happening in real time.

Imagine you list the amount of sales or customer invoices that should have been received in week 2, and in week 4 the money has still not come in. You are on it. You can make decisions. It is just a matter of chasing? Maybe the way you invoice is flawed. Is your product or service receiving complaints so people are disputing more than you would like.

Your accountant will probably laugh at the simplicity, but it’s all about you, and what you need to know. The easier a method, the more likely you are to do it.

Give it a try and let me know how you get on. And sign up below while you are at it. Have a great day!

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