There’s a saying in business, “You can go broke making a profit.” And another, “Cash is king. Profit is theory.”
As you know only too well, you don’t pay rent, meet payroll or pay your bills with profit.
You pay them with cash.
A business can make a lot of sales, have a book full of orders, have delighted customers and clients, have a great reputation, be growing, and yet still go broke.
Why? Cash flow.
The business might be profitable on paper, but have no money left in the bank. They cannot pay their bills and they become insolvent.
A growing business is often hungry for cash … hungry for inputs so it can make the business’ outputs, be they physical products, services or a combination of both.
The tragedy in this is that cash flow crises can often be averted. They can be predicted, planned for, and then contingency measures put in place.
For example, if a business has seasonal effects where some months are busier than others, or if a business knows it has some jumps in expenses or fixed costs approaching—such as moving to a larger premises or hiring more staff to cope with growth—then these expenses can be planned for and compared with the planned income in those months.
Which would you prefer to do?
(A) Call your bank manager and ask for a short-term loan or increase in overdraft when you are urgently in need of the cash (and therefore stressed, and desperate, and not in a great frame of mind to negotiate good terms), or
(B) Call your bank manager 6 months in advance and meet with him or her to explain the coming cash crunch, the reasons behind it, and plan for the funding in a calm, relaxed, totally-in-control manner?
Not only would you get the loan, you’d impress the bank manager and strengthen the relationship for further funding, should it be needed to support your growth.
The bank manager would see you are a professional operator with a planned approach to your business, not a fly-by-the-seat-of-your-pants operator. (They see a lot of those. They don’t like doing business with them.)
Apart from the relationship with your bank, there’s the immediate effect of sleeping better at night.
We all seek a level of certainty to comfort us. Knowing what lies ahead in business and planning your cash flow gives you peace of mind and confidence in your day-to-day work that will rub off on those around you…
…in your workplace and at home. It’s a good feeling.
This is one of the reasons we are so passionate about helping our clients put together cash flow forecasts, to help them keep their business on track and to avoid any stressful, unpleasant surprises in the coming months.
It doesn’t matter whether a business is a one-person hairdressing or lawn mowing business, or a 10 person, 20 or 200+ person business.
Every business needs a cash flow forecast.
Running your business without a cash flow forecast is like driving a car at night along a dark country road with only your normal headlights on. It’s hard to see what lies ahead. Some wildlife might come right out in front of you, leaving no time for you to react. CRASH!
On the other hand, a cash flow forecast is like driving along that country road with high beam on. You can see so much more. You can drive with much more confidence. Less stress. And avoid the CRASH!
Another thing we often find in helping our clients build realistic cash flow forecasts, is that we can spot problems and make suggestions that help improve the business’ cash cycle. This puts money in your bank account.
For example, a combination of negotiating better terms with suppliers, tightening up or at least clarifying and enforcing your business’ own credit terms, and reducing stock holding and waste can have a powerful positive effect on your cash flow.
So, if a cash flow forecast is so crucial, why do many businesses not have one?
Simple. Business owners get busy. Busy pleasing customers or clients. Busy dealing with staff. Busy paying suppliers. Busy generating sales.
Also, it’s easy to get ‘too close’ to your own business. “You can’t see the forest for the trees,” as the saying goes.
Having an independent and fresh pair of eyes come in and look at your business—especially cash flow which is its life blood—allows opportunities for improvements to be identified. Things that are there, but difficult for the business owner to see amidst the ‘busy-ness’ of it all.
So, what should do about it? Call us. Take action. A cash flow forecast costs less than you think.
It’s time to turn those high beams on!
Your next step... Call us on (03) 8669 1751 or email us on email@example.com to make a time to meet and discuss your options. We’ll then outline the costs so you know exactly what lies ahead.
Finally. An Easy Way to Track your Personal Spending Patterns.
Financial Misery or Financial Happiness. What Makes the Difference?
Most people will quite literally earn millions of dollars in their lifetime. Yet many people struggle financially and live from one pay period to the next.
With the ageing population and many Baby Boomers now continuing to work—at least on a part-time basis—past the traditional retirement age, people are working more years than ever. Even if a person works only 40 years, at average earnings, that's a lot of money.
It is said, “Money talks”, but for many, all it ever says is, “Hello, and Good-bye”.
Have you ever found that the month lasts longer than the money? Or have you ever got your tax return and looked at all the money you have earned over the past 12 months and then thought, “Where has it all gone?”
You're not alone. And the good news is, now there's a simple solution.
There's a great quote from Charles Dickens’ book David Copperfield where the character Mr. Micawber says to Copperfield, “Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
This is so true, regardless of the income level.
Yet keeping track of what you spend your money on, for many, is too hard, too laborious. The benefits of doing so are obvious to anyone, yet the discipline to keep all your receipts, enter the information into a program like Quicken Personal or MS Money (or just to write it into a paper ledger), and keep that going consistently over time is beyond most of us.
Well ... and here's the good news ... what if a piece of software could track and categorise what you spent your money on, but it involved very little effort by you?
Imagine the clarity you'd get if you knew exactly how much you have spent and what percentage of your income is going on the various areas including mortgage/rent, vehicles, groceries, schooling/education, eating out, entertaining, mobile phones and internet, medical and pharmaceutical, and so on.
For most people, it would be a real eye opener.
It is said that knowledge equals power.
That is very true when it comes to your personal finances.
Once you can objectively see exactly how your lifestyle and your habits—that is, you—are spending your money each year, and month-to-month as you go, you then have the power to make decisions on where you can change your spending (and saving!) habits.
In this information age and electronic era, many of us use credit cards, debit cards and EFT when buying things. We have now reached a point for the first time in history where more money is exchanged electronically than through cash transactions.
That's a lot of transactions. And it's a lot of data.
This data is available to be analysed on a societal basis, industry basis, business basis and ... a personal basis.
And that's where a brilliant tool comes into play: Xero Cashbook
Here's how it works ...
Xero Cashbook is online software. It's the non-tax-tracking version of the Xero software used by businesses.
It analyses and categorises all your electronic transactions to give you a snapshot of your complete financial position in an instant. This also organises a view of all your bank accounts and credit card accounts in one place. Very handy.
This is precisely what a lot of people have been waiting for: An easy way to track and control your finances.
Xero Cashbook categorises your spending and saving, so you can tell whether your money is being used for essentials or you're splashing out on other things.
If you are concerned about security, Xero protects your financial data with 128-bit SSL encryption, the same as online banking. Your data is well protected.
You can also invite people you trust, such as your spouse, accountant or other financial advisor, to access your Xero reports for free. This means that as your advisors we can see the true picture of your finances and spending habits, and help you stay on track.
This allows us to help you plan ahead and make the most of your money.
You will never before have felt so in control of your personal finances.
Being web-based, rather than being stuck on one computer like traditional software, you can access Xero from home, work and even on your smartphone such as an iPhone and Android device.
If you'd like us to step you through getting set up with Xero Cashbook, or their Xero equivalent for Business, or both, get in touch and we'll hand hold you through the process. It's not difficult, and once your bank accounts are set up, it happens automatically from there.
The way we see it, the more clients we help keep track of their finances in such an easy way, the more clients who will prosper and find financial happiness instead of financial misery, to paraphrase Dickens' Mr. Micawber.
Your next step ... Call us on 03 8669 1751 or email us on firstname.lastname@example.org to make a time to meet and discuss your options. We'll then outline the costs so you know exactly what lies ahead.
It's time to stop saying "good-bye" to so much of your money each year!