Keeping your business financially healthy is a top priority. However, for most business owners, doing numbers isn’t their jam. But what if we told you that you don’t necessarily need to become a financial wizard to achieve a financially sound business?
In today’s episode, we’re talking about cash flow forecasting.
Do you need to know how to do it?
Understanding and using a cash flow forecast is crucial for entrepreneurs. You’ll learn how to anticipate financial needs, adapt to unforeseen financial challenges, and avoid cash flow problems that could sink even a highly profitable business.
Although it may sound intimidating, your forecast is your financial GPS, guiding you through the twists and turns of business finance.
With the right insights, you can confidently manage the success of your business’s financial future without becoming a financial expert.
IN THIS EPISODE, YOU’LL DISCOVER…
- What is a Cash Flow Forecast? (00:32)
- The impact of cash flow forecasts (03:10)
- The critical importance of effectively managing cash flow for business survival (05:25)
QUOTES
“The purpose of a cash flow forecast is for you to know what money you need to have in the future.” -Carl Taylor
“It’s not profitability that determines whether your business survives over the long term; it’s how you handle cash flow.” -Carl Taylor
WHERE YOU CAN FIND CARL TAYLOR
Automation Agency
CarlTaylor.com.au
LinkedIn
Facebook
Twitter
TRANSCRIPTION
Carl Taylor 00:00
Cash flow forecasts do you need to know how to do them? Keep listening, let’s chat
Carl Taylor 00:16
Hey, I’m Carl Taylor. I’m the founder of Automation Agency and the co-founder of Dadpreneur. This is your podcast all for entrepreneurs on the journey, we’re helping you rise the tide so that we can lift all boats. And we can all achieve more success, more freedom, in particular, more money, more time, better relationships, and just feeling better about ourselves as entrepreneurs as we go through this life changing journey that is entrepreneurship.
Now today, I’m going to talk about cash flow forecasts. If you’ve been in business for any period of time, you’ve probably at some point had someone say, have you done a cash flow forecast? Probably use your accountant or someone who’s very financially savvy. And my experience is for most entrepreneurs, the answer will be no, either. What is that? Or that sounds hard, or I tried to do it once. And it was just complicated.
So let’s talk about what is a cash flow forecast. A cash flow forecast is where you effectively forecast from today moving forward, cash in versus cash out. Right. So it’s a guessing game at its core, but it’s an educated guessing game, if it’s done well, you’re looking at past performance. And you’re also aware of certain things you’ve invested in.
And so if for example, you’re in Australia, you know that you have a quarterly bass that needs to be submitted, this is in Australia, what we do to submit tax to do that every quarter, we have to report on the the GST, the taxes that we held, and also payroll and all those other things. So we submitted that. And so you can plan for that, you can forecast and go. Well, I know that roughly I’m probably going to owe X amount this month.
So let’s, uh, let’s pretend you’re in June and you’re going, I know, I’m gonna have to pay that in October, you can forecast out and go, Well, there’s gonna be a big cash outlay in October of about this amount that we’re guessing based on the previous numbers or how we’re tracking. And so that gives you an idea of, okay, I’m gonna need a bunch of cash at that time. And so it’s effectively doing that on a week by week basis, not just on a big month out, but like, you’ll go in, month out week by week, this is money expected in this is the money expected out. And so it allows you to kind of see where the bumps are. Because usually it’s not a Well, this week, I made $1,000. And then next week, and I only had to pay $500. Sometimes it’s like you’ve made $10,000. This week, next week, you’ll make 2000, the week after maybe you’ll make none. And that same week where you made none, maybe that’s when you’re gonna have a $20,000 bill to a supplier or bass or something you need to pay. And then you need to make sure that in those earlier weeks when the cash was flowing, that you didn’t just go and spend it all because you knew you had these outlays down the track that is the purpose of a cash flow forecast for you to be able to know what money you need to have in the future to go out what’s expected.
Are you going to find yourself in a shortfall where you’re going to need to borrow money, either from yourself outside of the business or from a lender or get money elsewhere? Or it’s gonna give you warning signs, I need to sell like crazy to bring more cash in.
So that is the purpose of a cash flow forecast. Are they valuable? Yes. Are they useful as a business owner? Yes. Do you as the business owner need to know how to put one together? No, I don’t believe so. In fact, unless you have a big financial background, I would encourage you not to be the person to put it together. I would rather you hire someone, whether it’s your bookkeeper that you tell them you want them to do more than bookkeeping, and move more into a financial role.
Whether it’s a CFO, you can get fractional CFOs who come into your business who do these things. We previously interviewed one a while back, or whether your accountant and you say hey accountant, I need you to do more than just my compliance work of tax, I want you to actually proactively help me with this business, usually in a kind of a virtual CFO. way.
So I would encourage you to get someone else to be in charge of putting together your cash flow forecast. As I said, the exception there would be if you are an amazing numbers person, and it’s your jam, go for it. But most entrepreneurs, this is not your jam. You don’t want to do this. You don’t like doing it. And frankly, it’ll be like pulling teeth.
You don’t need to know how to do a cash flow forecast. You just need to know how to use a cash flow forecast. And how do you use one if you look at it. You ask questions of the person putting it together to make sure that they’ve factored in all the different things because you gotta remember if you get someone else to do your cash flow forecast, they may not know that you just signed this big deal or that there’s this software you’re planning on buying. So they may not affect everything in their forecasts. They’re not mind reader’s. So you’re going to need to have a conversation, review it and make sure it seems to track with what you’re expecting, so that they can update numbers in and numbers out based on things you’ve committed to or things you’ve achieved. But outside of that, you then need to be able to look at it and go okay, well I can see we’re gonna have a shortfall in three months time. What do I do with that? I need to not buy this thing right now. Or maybe we need to buy less stock, or you know what that person I was planning on hiring. Maybe I can hold off a few more months because we can’t really afford to have that cash outlay come out right now. Or maybe if we’ve got this loan, we’re gonna need to refinance it, maybe it’s make it over a longer term because you know, the balloon payments are gonna be due soon.
So how about we refinance it over another three years, which will help even out that cash flow spending, because it’s not profitability that determines whether your business survives over the long term. It’s how you handle cash flow, you can have a wildly profitable business and still go under, because you’ve got cash flow problems. I’ll say that again, you can have a wildly profitable business and still go under because you have cash flow problems. So a cash flow forecast is a great tool, but you do not have to be the person who knows how to put one together. I personally hate putting them together, I generally don’t use cash flow forecasts myself. And I would say that that’s probably a mistake. I’ve just built my business in a way that hasn’t been an issue because we’ve smoothed out cash spending due to how I manage money with multiple bank accounts.
And it’s something that I teach other people about how to manage money through multiple accounts, and automated transfers. But if I was not where I’m at right now, I would 100% be asking my financial advisors, my virtual CFO, is I’d be hiring someone to put together this cash flow forecast for me, and then I would be reviewing it on a weekly basis, I’d want it updated on a weekly if not daily basis depends on what you can afford to pay. And I will be reviewing it regularly just so I can make sure that I’m not overspending and I’m making the right decisions. Because without a map of where things are going, how do you make solid decisions today?
So the only thing I really want to leave you with is a cash flow forecast is a good idea. You don’t have to use it. I don’t use one haven’t used one really in 20 years. That’s a lie. There were a couple of times in my IT business, we did have one for a while.
But generally I’ve run businesses without them so you don’t need them. That said, if you’re struggling with cash right now, I would highly encourage you to put one in place, get one in place and use it you don’t know how to need to know how to do it. You just need to know how to use it. I’ll leave that with you. And until next time, keep up the journey
You’ve been listening to Entrepreneurs Rising. Thank you, dear listener, for tuning in. I appreciate your time and look forward to connecting in future episodes if you would like show notes or any resources from today’s episode, you can find them at rising dot show. Rising dot show. You can find the show notes for this episode and all other episodes as well as links to socials and the ability to reach out and connect with me make your suggestions for future episodes. Until next time, keep up the journey.
Outro:
You’ve been listening to Entrepreneurs Rising. Thank you, dear listener for tuning in. I appreciate your time and look forward to connecting in future episodes if you would like show notes or any resources from today’s episode, you can find them at rising.show rising.show you can find the show notes for this episode and all other episodes as well as links to socials and or the ability to reach out and connect with me make your suggestions for future episodes. Until next time, keep up the journey.
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