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Why cash flow is so important in business

You would be surprised at the number of business owners that don’t have a deep understanding on cashflow or its importance to their future success.  To me, it is obvious why it is vital for your business, but I have learned over the years that there are many people who do not want to ‘tackle’ the topic of cash flow.

This can be for several reasons:  

  • “I don’t like numbers. I was never any good at maths at school.”
  • “It’ll be alright. It always works out in the end.”
  • “I leave that to my accountant. They handle my cashflow.”
  • “I just look at my bank balance on a regular basis. It always seems to be ok.”
  • “I don’t have time.”

Personally, I believe it often comes down to a fear of facing the facts.

People tend to assume that it will be bad news when they look at the numbers, so they avoid it.  But that is not always the case – there is often a pleasant surprise.

I consistently work with my clients to help them realise that facing the facts is the best path.  Once you have the facts, you can work positively and make the right decisions to help progress and strengthen your business, no matter what position you are in.

My simple step by step approach helps you to build the cash ‘picture’ making it far less daunting by looking at one element at a time:

  • Understanding your income streams
  • Operating costs or cost of sales (fixed and variable)
  • Overhead costs e.g. marketing, rent, equipment hire
  • Financing costs
  • Capital investment

Put simply, I help you take these ‘jigsaw pieces’ and build a picture. 

The real benefit and beauty of having a cashflow model (this is as basic as a MS Excel spreadsheet, which is nothing to fear!) is that you can start to consider different scenarios – good and bad.

For example, you may want to understand the impact of an increase or decrease in online sales volume by 15%.  Or if you are a landlord, what happens if mortgage rates increase?  If you understand your numbers, you will know when it is a good time to invest in more equipment or staff.  Or even better, take more out of the business for yourself. 

These decisions can of course be made without a deep understanding of your cashflow.  However, I would suggest they are not informed decisions. I am a believer in trusting your gut instinct but when it comes to cash, having supporting evidence is extremely valuable.

If you want to learn more about how I could help you to stop fearing the facts of cashflow, please get in touch – it is not that scary honest!