Take Five Minutes: Plan your business cashflow for the next 3 months
Do you know exactly how much money comes into your account and leaves it, and when? Knowing about your cashflow is one of the foundations of a healthy business - and it's amazing for peace of mind.
What is "Take Five Minutes"?
In this series I want to encourage you to take just five minutes out of your busy day to set yourself up for bigger, better success.
People wonder how they can make their dreams come true: very often, it's a matter of working out a way of making a small dent in a big ambition, putting the right systems in place, and making sure that it's easy for these systems to work.
I will share my own systems, so that you can test them and see whether they work for you.
If you want to share a five-minute system with my readers or indeed give me feedback on how this is working for you, tweet me @SusanHayes_
Remember, it only takes five minutes, right now, to change the course of history - your history at least!
Plan your cashflow for the next three months
When you map out your cashflow in advance, you will be aware of any potential issues long before they arise. You can be proactive with plenty of time to take action and avert any difficulties.
Do you know how much money you need in order to run your business for a month? It's one of the most liberating things. If you don't have that information, you need to calculate that as soon as possible. This is important for better technical management as well as peace of mind.
This is what you need to find out: what are all your outgoings and expenses for a full month of running your business?
Do you know your business's breakeven point?
This is your golden number. Now you are clear: as long as you are bringing in that amount each month, you are in the black. That point where your income exactly covers your outgoings is your breakeven point. Knowing it is a key antidote to anxiety. Do you have enough income planned to reach that number for this month, and the next, and the next? If you do, take a breath and enjoy that feeling of being in control.
If you haven't reached that number yet, now you know exactly how much you need to make in order to bridge the gap. One of my mentors used to refer to that gap as the opportunity for "UFOs". He said that, once he knew how wide the gap was, his sole focus was to find that "unidentified flying object" of business opportunity that was needed to close the gap and turn it into a surplus.
Keeping your finger on the pulse of your cashflow is one of the most important things you can do to banish stress. If you know your cashflow is doing well, if you know you will have enough money each time an expense needs to be covered, then you can turn your attention to many other strategic decisions. You are not in survival mode anymore, and you can pursue new opportunities. While your competitors are worrying, you're focusing on new horizons. This is priceless.
Cashflow is the evolution of your bank account over time
So plan your cashflow for the next three months: how much money do you have coming in, and when? How much money will be going out, and when? Take five (or ten!) minutes to look at recurring expenses, invoices outstanding, and any foreseeable expenses that will occur in the next twelve weeks.
Then you can easily chart your progress: if you have a big bill to pay on the 12th of next month, you need that outstanding invoice to have been paid by the 10th, so that the required amount is on your account.
Planning your cashflow in this way is the best remedy to vague worry and dread. Now you know exactly what you have to do: which invoices need to be paid when, and how much more business do you need to drum up if there is any gap.
Read more about cashflow:
Why do it
Planning your cashflow for the near future is a great habit to take for your business. It has many imediate benefits:
1. It will push you to be proactive and put yourself in a good position.
Finding out this information will motivate you to send out invoices on time and to follow up on your credit terms faster. If you want to borrow in order to expand your business, you will have a much more fruitful conversation with your bank.
2. You will spot useful patterns.
For example, I noticed this about a specific client: if I get the invoice in before the last day of the month, I will be paid by the 4th of the next month. If I let a few days pass and send the invoice at the beginning of the new month, then I know I won't be paid before the 4th of the next month after that. By sending out my invoice late, I'm putting the company in the awkward position that it won't get paid for five weeks instead of four days. Once I spotted that, I started asking clients how their payment cycles worked. This makes life easier for them, and for my company, too.
3. Give yourself the gift of time and the ability to see things coming.
You won't be taken unawares by issues and you can avert them and solve them long before they become a problem.
4. Take deliberate, calm, effective action, well in advance of trouble, instead of constantly putting out fires.
5. Business success is very much down to reliable systems.
Put good systems in place, and little by little you will reach a point where your business runs on autopilot. Now you can focus on improving it, growing it, going for new markets... All the exciting things that make business the dynamic buzz of activity that it is!
6. Stop worrying, by getting a reliable picture of how your business is doing.
"I procrastinate on doing it because I'm afraid of finding out my business isn't sustainable..."
The problem won't go away if you bury your head in the sand. The earlier you realise there is a problem, the better: you have a bigger margin of action because you have a longer period of time in which to do something. If there are really big issues in the business, the sooner you take action, the better the outcome is likely to be.
However, it's highly likely that your business isn't doomed at all - but refusing to look at the numbers might well spell its demise. The earlier you take stock, the better. Now you can act.
"I'm afraid that I will then have to take action - that's what frightens me. Once I know the actual situation, I will have to do something about it."
You will always have to take action: action is what we do, as long as we are alive. Nobody can cruise through life, especially not business life. And there are many micro-actions (5' actions) you can take.
You might be afraid to take action because you don't know what to do: in this case, it's very simple. If your cashflow isn't looking good, then you can either: create more business, or manage your outgoing cashflow by extending your payment credit terms, or by obtaining an overdraft.
The important thing is that you keep taking action. Start today: do your opportunities spreadsheet, call people up and invite them for coffee or lunch, take small steps every day. There are many things you can do that are well within your comfort zone - it's a snowball of small, regular activities that will make your success.
Cashflow issues are easily prevented by being proactive. The habit of doing cashflow projections is a great one for the health of your business - and your own mental health!