How to make sure you don’t run out of cash!
Article by Chris Roberts
Wanting your own business is the dream for many people but the reality of the situation can mean you end up confused and alone, responsible for everything from dealing with difficult staff personnel matters to issuing and chasing invoices. You really do need to be a ‘Jack of all trades’ and that isn’t easy if you don’t have the appropriate experience, training and /or support. That’s why more and more people are turning to Franchising, because if you choose a good Franchise, you will get plenty of training, support and of course you will actually achieve your goal of being ‘The Boss’ of your very own business.
The reality is that you will be given all the tools you need to run a successful business and providing you follow the model and put all your energy into the process you are likely to be successful. That is as long as you don’t run out of cash!
Only you can control this so don’t leave it to chance. Be aware of what is happening in your business. How much money you have and how much money you need. It is your job to find a way to ‘balance the books’.
So if you are new or relatively new in business, here are some tips and hints to help you,
Let’s start with some fundamental points: You are about to set off on a business journey. You need to be clear in your mind what your destination is and then plan your route accordingly. So what are your business objectives and how are you going to achieve them i.e. you need to set out your business strategy.
The next step is to create a financial plan around this strategy. Your financial plan should have three main parts to it:
The projected profit and loss account, as the name suggests, tells you whether you are likely to make a profit or a loss and therefore whether it’s worthwhile doing what you want to do the way you are planning to do it!
The Cash Flow Forecast tells you how much cash you will need, each month, in order to stay on course and whether therefore you can actually afford to do what you are planning to do.
The projected Balance Sheet tells you in advance what your business will look like in the future in terms of its assets and liabilities, i.e. what your business owes and what your business owns.
Having now properly planned and started your business journey you then need to make sure you are staying ‘on track’. You cannot really manage your business performance properly unless you regularly measure how well you are doing. This is the next fundamental point. You need to monitor your business performance as you go and take the necessary corrective actions to ensure profitability and even more importantly that you don’t run out of cash.
Using your bookkeeping system to create monthly (or at least quarterly) management accounts will help you to do this. You can then look at trends to spot problems before they become too serious (e.g. negotiate longer credit terms or increase an overdraft facility).
Trend analysis will also help you to change your plans or route along the way because you will soon learn that your business will be influenced by many outside factors which you will not be able to control. Your plan, therefore, should be flexible and not ‘cast in stone’. So from a positive perspective be prepared to take advantage of any unexpected opportunities that crop up, e.g. a competitor closing down or a sudden upturn in the economy. However make sure you have worked through the ‘cash’ consequences of your actions as there can be a big difference between ‘potential profit’ and ‘actual cash’.
So, in conclusion, what are we saying? You want to be ‘The Boss’ and to run your own business and you want to be successful. Well you will be, if you start with the right ‘mind-set’ and remember the following:
- Invest in some appropriate training (such as our ‘Understanding Business Finance and Accounts Course’) to ensure you have the skills you need.
- Decide on your business objectives and plan your strategy.
- Build your business and financial plan around this.
- ?Don’t be a ‘Busy Fool’! – Make sure the business you do is profitable.
- ?Measure and monitor your progress against your plan.
- Always remember: ‘Turnover Is Vanity, Profit Is Sanity and Cash Is Reality’.
So now, when or if you have your own business and you are ‘The Boss’ you now know what to do!
The author of this article, Chris Roberts ACIB QFP is a director of Franchise Finance which runs various financial training courses and workshops and also prepares Business Plans and Business Health Checks for franchisees and franchisors. The company, which is an affiliate of the British Franchise Association, has a 95% success record in raising funds for their clients and is recommended by all of the UK Banking affiliates. See their website www.franchisefinance.ltd.uk for further details.
Last Updated: 27-January-2016