Forecasting for change
I’m not talking about the weather. I’m talking about budgeting!
Just like the weather though, if it was hot yesterday it doesn’t necessarily mean that it’s going to be hot tomorrow or even next week. Things change. Southerlies come in, weather patterns change and larger environmental forces are in play.
Being aware of what’s going on in your business on a regular basis allows you to adapt and pivot quickly if necessary. Imagine having a great budget set up, but not looking at it until the end of the year and finding out you ended up with nothing in the bank to pay yourself. It may have taken one tweak such as a change of supplier or update of pricing that could have meant the difference between an okay year and an amazing one.
It is important here to note that there is a distinction between cash flow and profit. They are two different, but equally important indicators for the financial health of a business.
Cash flow is the amount of money flowing in and out of a business. It will determine your ability to meet current obligations.
Profit is the amount of money available after taking your business expenses away from the revenue.
You need to understand the difference between the two as cash flow is what keeps you in business! Receiving payments and timing your outgoings is what determines whether you have money in the bank at the end of the day.
There are five main things that can change and make a significant impact on your cash flow.
- Price
- Product/packages
- Expenses
- Time
- Marketing
Keeping an eye on these five elements will help you identify changes in marketing and workflow planning, enable you to make the most of new trends and ultimately keep on top of your cash position.
For anyone who doesn’t love numbers as much as me, I understand that this can be a little daunting. I want you to know that playing with numbers can be fun, especially if you have some instructions on how to do it! Let’s look at the steps to reviewing your budgeting consistently.
- Grab your cash flow budget
If you don’t have one yet, then stay tuned! I’ll be showing you how to create one in the New Year.
- Start playing
What has changed this month or last month? Is it one of your expenses? Your pricing or quantity of sales? Type in the new figures and note how it changes the cash available this month, but also how it then affects future months.
- Review
Now you’ve made the changes to your spreadsheet, how has this impacted your cash available? If it is negative, how can you turn this around? Go back to the list of the 5 main things that you can influence above for 3 ideas you can implement this week to make it positive.
Some examples of what to look at include:
- Price: increase your prices – if your costs are increasing is it time for a price rise? If you have payment terms with your customers, perhaps it’s time to ask for a deposit up front or tighten the length of time you give them to pay you.
- Product/packages: is it time to switch your focus and marketing efforts to a more profitable product or package?
- Expenses: Defer, reduce or eliminate costs completely – are you paying for a system you don’t use, could you renegotiate supplier cost and payment terms or is there a purchase that you could put off until next month?
- Time: is it time to outsource so that you can have more time to look at the strategy of your business?
- Marketing: Do you need to spend money to make money? You could increase how many products or packages you are selling by increasing advertising or running a promotion
And that’s all it takes! A little bit of brainpower to figure out what to tweak to ensure your business has enough cash in the bank to meet its current obligations. If you’re keen to understand more about the finances of your business and how you can use numbers to your advantage, book a free chat with me here