How many times have you seen or heard of a business that’s closed its doors and thought to yourself “how is that possible?” They appeared to be doing so well, they had customers coming through the door, they were growing, employing people, and all of a sudden you read in the paper or hear about it through your own networks that they’ve ‘gone under’.
Usually, it’s not that they ran out of sales or customers, but that they ran out of cash. It’s one of the most critical things that I see business owners either get wrong or just fail to understand – the difference between making it and getting it.
It’s not good enough just to track your sales, or your revenue, because while that’s making it, as in making money, that doesn’t tell us what’s happening with your fuel tank or fuel reserves in your business, which is your cash and cash flow. You can be driving your business at 1000 miles an hour and making a ton of sales and not actually have enough fuel in the tank to keep going.
So what you need to do is actually create two bottom lines, two spreadsheets, two financial reports, however you want to set it up. You’ve got to track your sales revenue versus your budget to make sure you’re on target for making enough money, but then you also have to record, track and monitor your cash flow and cash balance against where you expected it to be to ensure you’re getting enough!
Believe it or not, it’s actually possible to grow yourself out of business – growth sucks cash flow. Growing a business takes money, and that pulls money out of your bank account, out of your reserves and if you don’t have enough reserves, then you run out of fuel and your engine stops.
So get yourself two simple spreadsheets – one that tracks your sales revenue and expenses, versus what you forecast or expect them to be over the next 12 months. The second spreadsheet is a simple cash flow forecast.
If you’d like a couple of free templates, send me an email at firstname.lastname@example.org and I’ll send them back to you.
Hopefully I can help you get a bit more…!