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Part 1: If you aren’t forecasting your cashflow, your startup may already be failing.
There’s very little more fulfilling than starting and growing your own business. But ask any business owner who has done it and they will almost certainly tell you that their true experience of starting their own business, is quite often so much further away from the ideal they had in mind when they opened up shop for the first time.
Because of the hard lessons learnt from experiences unknown to them, or known but neglected, along the way that has either made, or broken, them.
The harsh reality in the UK stands that more startups fail in their first year, than succeed. And those that do make it through are hard-pressed to see their first successful 5 years of trading. It’s a reality of life – some SMEs are destined to fail, before they’ve even created their first bank account.
If you are considering starting your own business – read on.
We’re not in the business of scaremongering, and we’re certainly not in the business of discouraging. But we are in the business of speaking truth and giving you all the tools you need to see your business be a success. Our vision is your vision – your growth, ours. So, this blog isn’t about us. It’s about you – and your ability to foresee risks that may affect the longevity and health of the new business you’re about to start.
Some business leaders call it a SME Driving Test, some refer to it as a Startup Guide – whatever it is, the lessons we share are ones that we have seen in living colour – either within the businesses we’ve been part of, or the businesses of clients who have come to us for help.
Cash(-flow forecasting) is King: The importance of planning
You can’t pay your bills, if you don’t have the cash. It’s as simple as that. And as a business that is just starting out, for many, they find themselves at the mercy of larger organisations who set the payment terms, and who still, find it acceptable to delay critical payments. And while you wait for your customers to pay their bills, your overheads continue to demand payment from you – and if the two aren’t married up, and you haven’t a strong enough financial plan in place to cater for payment gaps, you very quickly find yourself, and your business, coming unstuck. But cashflow isn’t the problem in chief. A lack of financial planning, and therefore business funding, is. Understanding your financial bottom line is more than just ensuring your bills are paid. Truly understanding the strength of your financial forecast means that
- You are prepared for the proverbial rainy days
- You have business growth at the forefront of everything you do
- When you are at the receiving end of customers’ lack of payments, your business doesn’t cripple.
Developing the ability to predict and forecast where you’d like your business to be is one of the most important skills that you’ll ever own.
Successful financial planning means that you are able to build a business strategy that will see you get paid promptly while at the same time not overextending yourself in your own business financial commitments. An accurate cashflow forecast means that you will have complete visibility of the money flowing into and out of your business – and although the immediate is true, the long-term benefit of successful financial forecasting means you’ll know how much cash you’ll need to grow your business.
- Your cashflow forecast will tell you whether your business is meeting expectations (your own, or those imposed on you by other stakeholders in your business).
- You’ll have clear visibility on under-performing areas within your business – giving you the chance to act before the problems become dire.
- You’ll be able to make critical business decisions accurately and rationally – knowing that you have planned for unexpected risk.
- You’ll have a higher view of critical market trends that affect your business for better or for worse – giving you foresight and insight into new areas of innovation, product delivery and service offering.
Thinking about your cashflow forecast, it’s much simpler than you think it is (and actually a lot more fun too, if done correctly).
A good forecast covers critical elements like:
- Your projected (and likely) sales: These are the sales you estimate to make over the course of weeks, months and even years. For those just starting out – this will be hypothetical, based on market opportunity and demand. For those who have already been in business for a while, this may be based on your historical sales figures. Accurate projection means a true reflection on your sales delivery – not what you’d hoped to see. You’d want to consider any future actions that may affect your sales, for example expansion of your sales network, additional marketing activity, new market penetration etc.
- Projected payment timings: If you haven’t already got an idea about when your customers will be paying, you need to clarify this as a matter of urgency. Your terms and conditions should be fixed in such a way that you can accurately forecast when you expect to see payments moving back into your business – reflecting the cash you have in your bank, at any point of the journey – pre or post payment.
- Projected costs: Knowing when (and how much) you will be spending is critical to keeping updated with your cashflow forecast. Not only for peace of mind, but for the ability to keep growing – and the ability to identify when you will need to apply for additional business funding, to allow you to grow your business. whether you want to expand you team, or whether you want to secure new premises, whatever your predicted cash outlay may be – being able to plan for that, and budget accordingly, means that you keep control of all the incomings and outgoings – eliminating any nasty surprises that may appear.
If you know you need to be doing something, but you don’t know how to get started, don’t worry. You’re not alone. There are many entrepreneurs like you who recognise the need to get your operational house in order. As an experienced financial team, we’ve been doing this for a long time and working with many customers who have asked us for help to get their businesses in order, set for accurate planning and ready for growth.
Assessing what you need, and how you intend to get there is critical to preventing your business from becoming a statistic. We take time to understand and assess your readiness for growth. And if you’re on the path towards business funding, well then a business owner who has taken the time to plan, understanding their business constraints and opportunity, is an owner worth investing in.
Access specialist financial know-how to uncover exponential business growth today.