You’re driving along in your car, the fuel gauge is getting low and the fuel light comes on, you start looking for a place to stop and refuel. If you don’t re-fuel soon you know you’ll have a problem on your hands!
Imagine your car didn’t have a fuel gauge. How would you know when to refuel? Would it be a guessing game? Would you run out of fuel?
If only your business had a ‘fuel gauge’!
It’s easier than you think to develop and maintain a fuel gauge for your business. Commonly referred to as a ‘cash flow forecast’ this is the one tool that can save you sleepless nights worrying about how you’re going to pay that next bill, or better still, this tool will allow you to make much better decisions when it comes to deciding what to pay and when.
A cashflow forecast is a great tool to help you manage your business too. If you’re constantly running out of cash you have a problem, it is not good to be struggling for cash to pay your bills, in fact, it’s how 80% of businesses go out of business!
So how does it work?
All you need is to forecast and track your cash in, and your cash out. It really is that simple, and yes, you will have to guess, it’s a forecast! I suggest you over estimate cash out by 10% and underestimate cash in by 10%. This will give you a 20% buffer in your calculations.
As the real figures are available then you can update your forecast with what actually happened.
You should now have an approximate weekly bank balance you’re working with allowing you to see how much fuel is left in the tank before you make a purchase decision or pay a bill. If you’re constantly in negative cash flow you need to increase your sales or reduce your expenses.
How do I track it?
You can use a spreadsheet if you’re computer savvy or do your forecast manually if you want. It really doesn’t matter. I would advise against using your accounting software to do your forecast, they’re usually too difficult to use for cash flow forecasting on a weekly basis.
About the Author
Ben Fewtrell is a sought-after Business Coach, Keynote Speaker and trainer who has featured in Virgin’s Inflight Magazine and Entertainment Portal, SKY Business and “Secrets of Top Business Builders Exposed”. He is also the host of the popular Business Brain Food Podcast where he interviews leading experts on anything and everything business.