If there is one area that keeps business owners stressed out and awake at night, it’s worrying about the cashflow questions that go rolling around in your head, like “Will there be enough money to pay the wages, the rent, the suppliers?” and “How am I going to find the money to pay the BAS when it’s due each quarter”.
The statistics show that cashflow issues are to blame for the majority of business failures so it’s quite right that you should be worrying about the money side of the business, right? Yes, of course, but there are ways of making this stress free.
Step 1. Planning
Set goals for the business.
Determine what you want your revenue to be for the year. Look at what your income was last year and then consider how much you may be able to increase that for the next year. Be realistic with this but at the same time look to stretch it a bit beyond what feels comfortable.
Look at all your expenses and identify whether you are paying costs unnecessarily, whether the costs will increase over the ensuing year and any additional expenses you have planned.
Step 2. Documenting
Now that you have determined what your revenue and expenses will be for the year, you can use these figures to create your budget. This will require chunking down the numbers into monthly amounts and allowing for the slower months of the year. For many businesses this will be December/January and also potentially June/July. Look at what happened in the previous year or years to find the quiet months in your business and factor that into the budget report.
From the budget report, you can then produce a 12-month cashflow projection. This is similar to the budget but takes into account the timing of when money will come into your bank account and when you need to pay for your expenses. Some payments will be monthly, like rent, some will be quarterly, like BAS payments, and some will be annual, like insurance.
The cashflow report will show you whether you have any months where your payments exceed your income and you are short of cash. Armed with this information, you can then look at ways to alleviate the issue or seek short term funding if required.
Step 3. Reviewing.
The next step is to prepare a weekly cashflow projection for 12 weeks. This is a detailed report listing every single payment and when it is due. There may be weeks in the month when you have positive cashflow and weeks when it is negative. Knowing how this is flowing will help you determine what payments you can make when.
Put one hour aside in your diary every week to reviewing your progress looking at the actual moneys you’ve banked and what you need to pay. And then spend the rest of the week concentrating on doing the business, working on the business and put your money issues aside until the next week.