Through our Accountancy practice, we see and speak to many business owners from all walks of life in all types of businesses. One thing we all have in common as business owners is that we haven’t gone into business to fail. Quite the opposite! We have that dream, that vision of being successful whatever that measure of success may be. Sadly though, many businesses and I would say at least 80% of the ones we see, are struggling to get there.
While there are many different reasons why this could happen, there’s one that we’ve seen in nearly all instances. These people, well meaning, and intelligent as they are, failed to make an appropriate Business Budget and Cashflow Plan. We’ve covered this in some detail in a previous video.
Cashflow and Budget planning is the sot of topic that bored these business owners to tears. Their ‘plan’ insomuch as it exists, is to simply ‘wing it’. For a while this might seem to work, but eventually their luck runs out, they hid a hard patch, and 2/3 of these well meaning, intelligent business people, fold under the pressure.
It’s like hopping in your car and setting off, without more than the faintest clue as to where you’re going, and how you’re going to get there. The further you get from the areas you’re familiar with, the more you rely on guesswork, until you’re pulled over at the side of the road, completely out of fuel, out of reception and out of your comfort zone, wondering how it got so bad.
Just like planning ahead would save you in that scenario, so too does making a realistic Business Budget and Cashflow Plan save your budding business from a fiery wreck.
Let’s start with a Business Budget
Budgeting provides you the business owner with greater control over the direction of your business because it allows you to plan your future strategies and set targets.
For example
- What sales or income would I like to make in the next 6 or 12 months?
- What will be my anticipated expenses be ?
- How many staff will I need to achieve this?
- What will I have to spend in advertising?
- Do I need to buy another work vehicle?
- What materials, credentials or information will I need, etcetera, etcetera.
If you have something like this written down, and I mean written down, not just an abstract thought in your head, then well done, you’re ahead of the game.
More likely though, you don’t. There’s not enough time in the day, it doesn’t matter, it’s not like it will be helpful, yada yada. We’ve heard all of the excuses and made more than a few of them ourselves, and to date, we’ve all been proven wrong.
Next up the Cashflow Plan
Here’s where you take the admittedly abstract Business Budget and convert it to the life-blood of your business, cash.
It’s more than a metaphor. Every situation that causes hurt or worse in you, blood not getting to where it is needed, or being spilled and wasted, has a direct business correlate. Departments being starved of cash wither, and if you lose too much cash the business dies.
But unlike in your body, this isn’t a system that works perfectly without you, you’re going to have to help.
For this reason it is essential that you as the business owner are able to forecast (predict) what is going to happen to the cash flowing into and out of your business to make sure the business has enough of it to survive.
Will you be able to keep the doors of the business open ???
By creating a Cash Flow Plan, you can anticipate when a cash shortage might happen, how bad the shortage could be and its overall impact on the business.
The Cash Flow Plan helps you to determine if and when you will be able to meet your expense obligations, when loan repayments are due to be made, when you will need more funding for your business expansion etc .. etc …
When should you make these plans?
Why not now?
We both know that ‘soon’ and ‘eventually’ never happen, so just block out the time, turn off the phone and close the email browser and write something out. I guarantee you will be better off for it, every issue that you detail and write down is another one that won’t take you by surprise.
If you have any questions, leave a message on our Facebook Page, or send me an email at advisor@prudentgroup.com.au
