What If You Had A Crystal Ball For Your Micro Business?
Written by Laura Prather on February 22, 2017
Running a small or micro business is tough. There are a lot of decisions being made daily, and once you think you understand what your customer wants, things change. Wouldn’t it be great to have a crystal ball for your business to help handle your cash flow to avoid future pitfalls?
What if you could take much of the guesswork out of the money side of your business?
Knowing how much money you have available to you now or several months from now can impact every single decision you make in your business.
There is no way to know what sales you will have on a given day or in a given week, but you can know for certain how your sales today will impact your business next week, a month from now, or 6 months from now.
What if you could predict a downturn in business three weeks from now and plan for it today?
Is it possible to know these things for sure?
Not with 100% certainty, but it is possible to operate with such knowledge fairly accurately.
YOUR NEW BEST FRIEND
A cash flow statement sounds very dull. However, done correctly and consistently, it can be a crystal ball for your business, or at least a new best friend to your dream!
What can a cash flow statement tell you?
- Keeps track of all your expenses and income in an easy-to-read, one-page format.
- It’s designed to follow the flow of your money on a weekly basis.
- A quick look gives you a percentage breakdown of each category of expenses.
- It automatically shows you how much money can be spent to maintain your margins of profit. (i.e. It controls your cost of goods).
- You can see how a quiet day or big day in sales will affect your bank account a month from now. Revenues and expenses this week impact the numbers for following weeks. In other words, what happens today has a residual effect on your cash flow next week and months from now.
- You can quickly see trends and adjust your spending accordingly.
- As you develop a history, you can forecast quite easily.
- Create scenarios to see the future impact of individual financial decisions.
- When you update your cash flow statement, it identifies any possible financial shortfall (or excess) in the future.
It will reveal if you can afford new supplies, an ad in a magazine, a membership to a networking group, a trip to explore new resources, or the business coaching you want to do.
In my opinion, it is the most underutilized business tool. Your cash flow statement is like an x-ray machine for your business. It clearly reveals the health of your business and points to any potential changes needed.
USING A CASH FLOW STATEMENT
I update my cash flow statement every Sunday night. As a result, I can see that if my sales continue at a certain pace, I can have a shortfall. Thus, I can adjust future expenses.
Whether you are a product-based or service-based business, using a cash flow statement helps you determine your break-even point. In other words, what revenue the business HAS to bring in to keep the doors open.
When starting a cash flow statement, enter your PROJECTED sales and expenses for as many weeks as possible. Then, once a week:
- Update the spreadsheet with the actual revenue and expenditures.
- Review how your actual numbers impact future weeks.
- Adjust your projected sales and expenses accordingly.
JUST DO IT
I realize explaining the critical importance of a cash flow statement is nearly impossible in one blog. But trust me when I say that you ABSOLUTELY MUST BE USING a cash flow statement weekly.
I encourage you to stay in touch as I will continue to address how the cash flow statement works and how to best interpret it.