Cash Flow Reporting: The key to your future success

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It’s difficult to achieve long term goals without some thought to cash flow.  Most managers can use emergency measures (personal cash infusion, holding back vendor payments etc.) to cover smaller blips in their bank balance.  But it’s harder to achieve stability in the long term without a plan. 

Cash flow reporting allows managers to look down the path and predict what lies ahead and make sure that they have the cash to create the vision they have in mind. 

If you were setting off across Atlantic Ocean in a sail boat and really, truly wanted to make it to the other side, you likely wouldn’t grab a pair of binoculars, your rain jacket, jump in the boat and say “I’m all set to go!”  You would gather information about seasonal weather patterns, previous used routes, and other traffic you might encounter.  You’d have satellite images, and a hotline to weather Canada.

It’s no different planning the future of your business.  Don’t count on your personal credit and some back of the napkin calculations to get you through!

Even in a highly profitable business, cash can be an issue.  You might have a big client who pays their bill late.   There can be planned or unplanned periods of expansion and contraction in your revenues due to seasonal changes in business, rollover in staff, economic factors or any of the other many variables.  Maybe you are hit with a broken piece of equipment or an unexpected legal issue. 

The result is less money in the bank.  And less money in the bank means it can be hard to pay staff and vendors, jump on opportunities and handle unexpected problems. 

So how do you create a cash flow analysis that will let you prepare and plan with confidence?

1.        Start with good information – The most powerful tool in understanding the future is using data from the past.  Financial information that is accurate and up to date is your best friend in helping you plan what’s next. 

2.       Just do it – You don’t get a perfect cash flow report the first time out.  It will take a while to develop a process and understanding that will give you the information you need.  If you’ve never done a cash flow review before, ask your bookkeeper to help you develop a one month forecast.  When you have a handle on that, move to three months, six months, a year, etc.  It takes time and consistent effort.

3.       Ask for insight – No one knows your business or organization better than you do.  But someone else might see things you don’t.  Review your numbers with your accountant, coach, colleagues to get their perspective on issues and patterns.  

4.       Stabilize – Once you have some insight into your cash flow from ongoing analysis and outside perspectives, start exploring how you can stabilize the numbers so that your cash balance allows you to act on opportunity and move towards your vision.  Do you need to grow sales, ask for shorter terms with clients, longer terms with vendors, or develop new streams?  This is where the real business visioning starts.

 

Cash flow reporting is an evolving and imperfect process.  You can’t predict the future with 100% certainty.  But the information you garner from returning over and over to your numbers will be powerful partner in growing your performance.

 

At STAR Company we have lots of tools for getting you started with cash flow or for improving and refining your process.  Drop us a line – we’d be happy to chat!