© Copyright Bundaberg Business Brokers & Development Consultants 2008
© Copyright
Bundaberg Business Brokers & Development Consultants 2008
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It tells us the current status of everything that keeps the car running properly. Importantly, when we see the temperature gauge indicate the engine is running too hot, the simple thing to do is put water into the radiator at little or no cost. The engine will then return to nominal status. Because you identified the rising temperature early, you avoided an entire engine rebuild with only the minimum inconvenience, simply by acting promptly. Basically, the monitoring system, and your reaction avoided disaster. You see a cash flow forecast is just the same as the dashboard of your car. The problem is that many businesses only watch two elements with their business. How high their sales are and how high their costs are, and if they see the costs are less than their sales they think everything is alright. More often than not, when they find there’s not the expected amount of available funds then sometimes it’s too late and the business is allowed to slowly self destruct, with only a rebuild in sight. By operating a cash flow forecast you will be able to identify a problem almost as it occurs, just like the boiling water in the radiator. If your expenses are unexpectedly high, you will be able to identify where in the business, or which category the money is being used excessively. You may notice you spent far more than expected on communications, and because you have identified where, you are able to do something about it before you get the next set of communication accounts in. A cash flow forecast is the dashboard to your business decisions. One of the major problems facing most businesses is the lack of money or working capital. Cash flows in and out of a business. It flows in from cash sales, people settling their accounts, money you borrow, and additional capital raised. It flows out to pay wages, stock, expenses, dividends, loan principal and interest.  Imagine
that you are trying to fill a bucket with water. A very easy task if the water
is flowing in and there is no hole in the bottom of the bucket. A much harder
task if there is a hole in the bucket. An impossible task if the outflow through
the hole is greater than the inflow. We all know the dilemma poor old Henry
faced in trying to fix that hole in the bucket.
A business without a Cash Flow Forecast is like a ship without a captain, and will most likely end up high and dry because there has been nobody to make informed decisions to steer direction towards a planned destination. Yes you've heard it all before, because it really is a simple fact, that if you don't plan your income and expenditure, you will spend all of your money and leave yourself, family, bank, business and employees all vulnerable. A Cash Flow Forecast is basically a spread sheet that will identify the level of funding you will need for the future, formulated from your level of commitments of the past. A cash flow forecast is exactly what the name implies. It is a forecast, an estimate, a calculated estimate, and when you get in the swing of using it you will agree it is nothing more than a financial choreography but it's essential for success. Below is a general picture of what they look like.
Whether its your business, or your home living expenses the same cash flow forecast applies. At home you apply all of your expense categories as you would in your business, and if you forecast your expense levels in relation to what you paid last year, plus say 6% then your forecast expense budget should be close to accurate. If you take expected sales, (or income) based on current trends, and take into account, holidays periods and other down-time factors, then reduce them by say 5% per month, then you will be embedding a buffer for error. In other words, deflate income and over estimate expenses. This is a very general description. You should click on the Lab when you finish this page. If you have a need to replace or upgrade plant and equipment, new vehicles or additional staff, you can schedule them for the months ahead. Your forecast offers you early identification of perhaps a problem area, where excessive spending has been unidentified. When you identify the excessive area from your forecast you can initiate control measures. By knowing what you need each month, you can easily work out the level of daily sales and expenses, it also identifies weaknesses within your customer credit policy by showing sales for the month as opposed to cash in for the same and following month. If unknown these matters could severely limit your progress towards attaining your goals.
Your Cash Flow Forecast helps you overcome the need or want emotion. It identifies your limits, at any given time. Usually a copy of your cash flow forecast is held by your bank, as loans and overdrafts are based on the contents of your forecast. When you have been identified by your bank as a responsible manager by adhering to your plan, you will find your bank will be a lot more responsive to your requirements, rather than that of a person without a plan. Cost or Investment ? The return on your investment goes far beyond financial gain. Knowing you constantly operate within your financial constraints and being prepared for unforeseen contingencies gives you a peace of mind unparalleled in business today. This reflects not only in your management techniques and attitudes, but also in your family relations. The cost of preparing a cash flow forecast in the past may have been up as high as two thousand dollars, but readily available software has put the tool within the range of every business. People have lots of reasons why their business is not making the profit they expect. They blame the economy, GST, competition and often the attitude of buyers, but never themselves. There is only ONE real reason a business becomes unviable, and that's the captain. Businesses that have gone broke in the past usually had their plan in their head. That means they can change their plan at any time and nobody else will ever know. Your plan must be in writing, and it must be completed every month by yourself or your bookkeeper to keep it current. Sooner or later, if you are unable to accurately forecast your cash flow into the future you may very well find yourself in a forced sale scenario, and that makes everything you do until then a complete waste of time and mental energy. What you will need to do if you engage someone:-
MS-Office and Office-Pro include Excel and MS-Access. Both include tutorials, hints and tips. |
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A
cash flow forecast reminds me of the dash board of our car. If we only had two
dials, one for speed and the other for distance then we probably wouldn’t
travel very far at all without major repairs and maintenance. However, the dash
board of our car tells us a lot more than just speed and distance.
One of the predominant problems in business today is
"Impulse
Buying". 
