The importance of cash flow

If you do nothing else prior to making a financial commitment to your business idea – know this. Understanding your cash flow is critical. How so?

Because businesses spend money, not profit. It’s a common mistake for new business owners to work out how much profit can potentially be made, but forget to work out what the cash flow of the business will look like month to month. Profits are nice but cash in the bank is what keeps a business alive.

A proper cash flow analysis of your potential business should include a month-by-month breakdown of your potential sales revenue, all business expenses, as well as an overall profit and loss. You need to be able to assess where the trouble spots are likely to be upfront so you can plan out how you will work around there cash-tight times and keep your business above water.

If you’re not sure how to do this yourself or want some advice, speak to a professional. You can get a cash flow forecast analysis for your first year of trading for as little as $195. This is money well spent if it let’s you move into your new business venture with confidence and a give you a plan to manage the difficult moments that all new businesses face in the early stages of life.

Key benefits of a cash flow analysis:

  • Understanding your expenses month by month.
  • Understanding your potential revenue and incoming cash – I recommend you do worst case, average and best case scenario so you are prepared.
  • Plan out your costs by when they will impact your bottom line to ensure you will have enough money to pay debts.
  • See your problems in advance so you can deal with them now.
  • Assuming you are in business to make money you should do the numbers now and make sure they work, because if they don’t, what else matters?