‘How To’ Coaching series – Activity 19

Who controls your financials?

Chapter 2 – Financial Control – Rule your money

This is part of the ‘How to’ coaching series.  An ongoing series of activities to make your business successful.  Follow it step by step and see positive results as you develop a robust business model, set on a solid foundation.

Activity 19 – I know my monthly cash flow requirements

Have the you got the cash available to run your business today, tomorrow, this month, all year?

It can be the sort of thing that keeps you up at night….’have We got the money to pay our bills, buy the materials (or service) so that we can trade’?

When I say cash, it’s the available funds you have within your business; that can be funds in the bank + the size of your credit line (overdraft).

It may sound obvious, but I’ve seen people struggle to take on a really nice bit of work and then fund it until the invoice payment is received and cleared.

I have had my own frustrations with cashflow many years ago.  I was running a profitable landscaping business and had just been offered a lucrative contract with a reasonably sized housing developer. They offered me the opportunity to landscape the gardens and surrounding area for 15 houses.

A massive project for us.  I knew that we had the ability; I had enough people who were happy to work for me; I had all the right supplier contacts, who would supply the required amount of materials and equipment; We had CIS tax registration; I had HSE resources available…. BUT, what I didn’t have was… enough cash/credit to fund the job.

It was very frustrating, but I couldn’t get funding anywhere.  So, it was with a heavy heart that I turned down the opportunity.

It was all due to the fact I didn’t have enough cash (funds) to run my business before enough payment would be received.  If I had taken it on, I am sure my business would have gone under.

So, before you go getting grandiose ideas of expanding and taking on bigger projects, make sure you know your cashflow numbers so you will know that your business can fund them!

The ‘How to ‘bit:

Create an annual cashflow forecast. Then keep it up to date, on a weekly/monthly basis. Put all the current and forward ongoing payments into something like a spreadsheet, on the day they will be paid, plus any expected/anticipated outgoings that will come up to support work you have in the pipeline – plus any forecast from sales targets/forecasts.

Then record all income across the same period.  All the payments you are waiting for, plus those jobs in the pipeline & those based on the sales forecasts.

Then add your line of credit – i.e. if your business has an overdraft facility of £10k plus a business credit card of £5k, you would add £15k to the available overall operating cash.  Less any payments you are already committed to.

Note: be aware that you need to make sure that any credit facilities are paid as required.  It is a business risk that you need to decide you are willing to take.

If you do this on a weekly basis, you will know, given that your forecasting is relatively accurate and realistic, how much you have in the way of funds for that week and going forward.

If you would like help setting up your cashflow forecasting system, follow this link and Contact Us

About Alex Petty

Blogger, runner, mentor
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