Cash is King – it puts you in a more powerful position in your business. It helps you to negotiate better and it reduces the stress of running a business.
As your business grows, you need to adapt to new financial complexities. To accommodate this new growth, start with changing your approach to cash flow management.
Typical Cash Flow Management
The typical business owner asks themselves, “How much cash do I have in my bank account? Where are we? We are looking alright but rent and BAS are due next week.”
This is commonly how cash flow management starts. If you are that million, sub-million dollar business, it’s week-to-week forecasting based on limited information. It’s not always wrong, but it doesn’t take too many variables in and it’s impossible to grow if that’s the way you’re managing cash because many other factors do come in.
When you’ve got all your accounting and data in the Cloud, building a cash flow forecast isn’t as hard as it used to be. But, once you start getting bigger, there’s a lot more than next week’s payroll and rent to consider. There’s a lot more going on.
Whilst this approach worked for you as a small business, you may have now reached a much more complex stage where you can't see everything going on by asking a couple of questions and working it out in your head.
For example, when you come across a strategic investing opportunity, you need to be ready. You may need to build up cash to take advantage of the opportunity and you need to know how to do that.
Cash flow management is not as easy as the three or four variables that you modelled in your head in the early days of your business. It is much more complicated.
There are two ways that Sequel VCFO can come to your aid
The first way is short-term cash planning. That’s micromanagement cash flow and we like to do that for a 60-90-day period.
If you’re in the Cloud, we can access the data to build in an automated tool that automatically updates the cash flow forecast in the next 90 days based on the events that happened in the last 24 hours; or based on you knowing that a particular debtor is going to pay you late.
Because somebody’s managing your AR – hopefully us – you’ll know that the payment is going to come in in 30 days’ time because the client has agreed to a payment plan. You need to forecast that in.
There are plenty of strategies once you are in a cash flow rut, but it’s so much easier to be proactive. If you know that that the cash is coming and you get on the phone and be proactive, then you can manage any potential issues. That’s the position we try to get you in - with better information, you can make better decisions.
A level of micromanagement is needed to manage your weekly cash flow. But, where are you going to be in 12 or 36 months?
Growing businesses need to do much bigger modelling and forecasting.
We call it a three-way forecast. It’s three-way because it includes profit & loss, cash flow, and balance sheet forecasts. We look at the ways those three things interact and we’ll tell you what’s going to happen in the next one, two, three year period and we model from that.
Sometimes this is purely an academic exercise. Sometimes it’s an extremely strategic exercise. You’ve got the whole business model on a whiteboard and we’re working out what’s going to happen where and how much it’s going to cost, and how much money it’s going to bring in. So we model it out.
A forecast like this used to cost $9,000-$10,000 because it all had to be built in Excel from the ground up. There are now many tools that help us do it much more cost-efficiently, and we’ve got a great starting point because you’ve got all your live data in the Cloud with your Cloud-based accounting system.
A key starting point, though, is that you’ve got to be in the Cloud. It builds up from there. Once we can access all that information, we can advise you on all sorts of things in a much faster timeframe. Collaboration is easy and timely advice is accurate as we use a single ledger that all our advisors work from, making communication much clearer and more productive.
So, there’s no reason to be lying in bed awake at night juggling figures in your head. There’s an easier way to manage cash flow with complete visibility and control.