6 Excuses that Impede Control of Cash Flow
You can run a business at a loss, but not without cash – it’s the lifeblood of any business.
Without question, the most important cash management tool for business is cash flow forecasting. When I bring this up to business owners, they understand its importance to their success and agree it is something they should do. Yet, as essential as it is to understand and manage cash flow to keep your doors open, few owners take the time to predict their cash flow.
Why? There are six excuses I commonly hear.
Excuse #1: I have a good feel for my cash flow situation.
Many business owners have what they consider “intuition” about cash flow. If you happen to use this “method,” do you monitor your intuition against actual data? If not, you may be making critical business decisions that are not founded in fact. Cash flow forecasting is far more accurate than even the most seasoned “gut feel.”
Excuse #2: I’m not a numbers person.
If you are not a numbers person, you would be wise to make it a priority to have one available, even on an as-needed basis. Business is all about the numbers – sales, customers, employees, profit – so a numbers person is not simply nice to have.
Excuse #3: I don’t understand exactly what cash flow forecasting is or what it looks like.
Cash flow can be simply defined as the movement of money in and out of your business. There are templates available online that can be used as a starting point to develop a format. What’s most important, however, is to understand your business’ unique cash flow. The format is secondary to the thought process of understanding how cash flows in and out of your business and the related timing of that activity.
Excuse #4: It won’t be 100% accurate.
Is there anything you do in business that’s 100% accurate? Not likely. But that doesn’t stop you from doing what you need to do. Cash flow forecasting is, in some ways, a best educated “guess” about what is likely to happen under a certain set of assumptions which become more detailed and realistic over time. Your first forecast is a starting point and will become more accurate – the more it’s done the better we become at honing this skill.
Excuse #5: My bookkeeper/accountant should be preparing it for me.
In my experience, I have found few, if any, bookkeepers or accountants that can develop a cash flow forecasting template. They are valued transactional professionals and can provide historic information as a basis for the forecast yet rarely understand how the business works at a higher level. Developing the cash flow forecast is necessarily a collaboration of the business owner and the bookkeeper or accountant. Once the cash flow template is developed, most can populate a substantial portion of the forecast.
Excuse #6: It takes too much time.
Most of the activities that are essential to your business success consume some of your valuable time. The benefits far outweigh the time you’ll invest in developing a cash flow forecast. Most of the time will be required up front in developing the template for how cash flows in your business. Updating it on a regular basis will be time well spent on planning and controlling your cash flow.
Now that I’ve addressed six objections, I’ll highlight six of the benefits you can expect when you develop your own cash flow forecasting tool:
- It positions you to anticipate and plan for both surpluses and deficits – rather than being forced to react and do damage control.
- It provides a foundation for success and longevity. Many profitable businesses fail due to lack of timely cash flow.
- It enables you to manage your cash, NOT be controlled by it.
- It equips you to be more in control. You wouldn’t allow your business to run out of inventory, and you should manage your cash with the same resolve.
- A cash flow forecast will provide banks with information that will make you a stronger candidate for borrowing.
- It provides you with a keen understanding of data that is critical to business decision-making and managing profitability and growth.
Mastering your cash flow forecasting and management is critical to staying in business. If you don’t want to invest your time to develop your cash flow forecast or don’t have someone within your business that has the knowledge and skills to do so, hire an expert.
I would welcome the opportunity to assist you in developing this essential tool that you’ll wonder how you ever did without. Contact me for a complimentary consultation.
In my next blog, I will share my process for developing a cash flow template for your business, including how to determine the timelines for updating the cash flow.
