Small Business 101: This is Why It’s So Important to Estimate Your Cash Flow
When starting a business, it’s easy to get caught up in the excitement of bringing your vision to life. Most (if not all) of your energy is spent taking care of the little details you need to get your business up and running, but are you forgetting about the big picture?
We’re talking about cash flow. One of the hardest lessons business owners have to learn is that cash flow is king. Without more money coming in than going out, you won’t be able to afford even the most basic of bills. And if you can’t cover these costs, you’re out of business. It’s that simple.
That’s why it’s so important to estimate your cash flow. Good planning and a properly prepared cash flow forecast will give you a clearer picture of how your business is doing—and how it’s likely to perform in the future.
Here are a few things to think about before you start crunching numbers.
Growth eats cash
Growth equals success, right? Not necessarily. There are often growing pains associated with expansion, and it takes careful planning to make it through them unscathed.
Many new businesses aren’t prepared for all the costs associated with growing quickly. Expanding staff and inventory mean more money upfront, and you don’t always know when you’re going to recoup those losses. And if the market dips or slows, you need to make sure you can handle the extra expenses.
That’s why it’s so important to make managing growth a top priority. With an experienced accountant on your side, you can proactively monitor and estimate your cash flow to make sure you’re meeting your business needs, both today and in the future.
Be prepared for the unexpected
Unforeseen expenses can quickly derail your business plans. Things like equipment repair, leaky roofs, or even downswings in the market can gobble your hard-earned cash—cash you need to keep your business afloat.
Without an emergency fund, it’s difficult to get your business back on track. That’s why it’s so important to make provisions for the unexpected. Is a cash reserve a non-negotiable part of your budget? It should be!
It’s all about timing
Money flows in and out of your business on a daily basis. It’s easy to anticipate how much cash is coming and going, but you won’t always know how these funds will actually flow.
Even if your business is profitable, you might not have enough money available to pay the bills when they come in. Your cash in and cash out don’t always keep pace with each other, leaving your business short of much-needed money. Payments from customers may come in too slowly (or not at all) or you may have to build up your inventory before a busy sales season.
This gap in the cash flow can cause you to miss profit opportunities and can put you further into debt. So, to keep the cash coming in regularly, it’s wise to take special note of when big bills are due, to invoice customers immediately and to stay on top of past-due accounts.
Sometimes you need a little help
When it comes to the long-term success of your company, it’s not realistic to go it alone. Engaging a qualified accountant is one of the smartest investments you can make! Our team of Certified General Accountants in Victoria BC will work together and with you to ensure the longevity of your business. Whether you’re looking to get a handle on your cash flow or to fine-tune other aspects of your business, we’ll be by your side every step of the way. Contact our Certified General Accountants in Victoria BC to find out how we can help!
Image courtesy of Simon Cunningham.