The long-term success of a business is dependent on several variables. As a business owner, you need employees you can put your faith in and lean on 100%. You need efficient processes and systems that help you save time and money. And you need a solid marketing strategy, so you can get the word out there and attract more clients.
But what truly keeps your business going at the end of the day is its ability to make and manage money. And even though it can sound intimidating (especially if you don’t have all the details figured out), the truth is that there are some simple, tried and true tools that you can employ to get ahead of the game and improve your probability of success!
Today, we’re going to discuss five of them!
If you find yourself actively worrying about cash flow management, it might be a sign that you need to sit down and review your business goals. Why, you ask? because you’re probably in need of some direction. Every company’s goal is to make money, but how you utilize it and re-invest it is what makes all the difference.
If this is the first time you’re setting intentional goals for your business, don’t worry! It’s a simple process, and all you need is a blank sheet of paper or an empty doc to begin.
Now go ahead and dream a bit! Imagine all of the goals you can wish for your business. Take as much time as you need to complete this. You may have to review and add to the list to ensure it is complete (and that’s okay! Editing and reviewing are part of the process.)
These goals might look like:
Or something entirely different.
Now that you’ve done all that hard work and analysis, take some time to identify your top 10 goals.
You can do this by asking yourself, “If I could do only one of these, which would it be?” And then follow the same process to identify goals 2 through 10.
Now determine if your business is supporting your goals. This action will bring into focus where your business plan isn’t adding up with your goals.
This is an important exercise because once you have clear business goals, you’ll also be able to regain focus and adjust your cash flow to support these goals.
Every successful business owner needs to identify their goals. But on the flip side, they also need a clear picture of what their cash flow looks like and whether or not it’s serving those business objectives.
The simplest way to achieve this is to construct a monthly Cash Flow Plan. A Cash Flow Plan will contain your business’s income and expenses down to a tee. There are numerous examples of monthly budgeting tools available online. Take the time to find one that you like.
These details will give you the insight you need to make the required changes to align the cash flow with the business goals, whether that means curbing certain production expenses, finding opportunities to increase your income, room in your budget to expand or hire new people, or something entirely different that’s specific to your goals.
Ideally, you’ll go through this process monthly to ensure that you’re not straying away from your key business goals.
FACT: Every business owner you know has dealt with irregular income.
And it’s not a problem that you can predict.
In such cases, creating a cash flow plan for the next month can seem almost impossible, considering that you’re not even sure of the income that you’ll be bringing in.
An efficient way to deal with this issue is to build a cash flow plan based on a 95% confidence level of the income and expenses expected in the upcoming month.
But 95% isn’t a random number. To get this right, you’ll need to look at monthly income and expenses for the last year and set the 95% confidence level numbers moving forward. Most business owners have good insight into new and upcoming business activity for the next few months and that’ll help you create this plan. Remember, the cash flow plan must include all income, spending, and savings items.
The Harvest Fund is one of the best tools to have in place if you want to smoothen the performance of the 95% Confidence Spending Plan.
A business operating on the 95% Confidence Spending Plan will have “good” and “not as good” months.
In the good months, you can harvest any extra income to fund the Harvest Fund Savings Plan. This fund building may take a few months of experience to get it working as planned (but it’ll be worth it!) These funds are to equalize the “not as good” monthly income. This allows the business to operate at the 95% Confidence Plan.
A well-funded Harvest Fund has enough money to cover 3 to 4 months of income variability. Using this tool will help you bring irregular business income under control.
The Emergency Fund covers unplanned events that cost the business money. It is a tool you can use to polish the performance of your business over time.
Like the Harvest Fund, the Emergency Fund savings come from the 95% Confidence Level Plan. You can fund these two accounts parallelly by splitting the cash in a way that makes sense for the business.
Keep in mind that the Emergency Fund is not a slush fund. It is not meant to cover miscellaneous expenses or new investment opportunities. It is an operational finance insurance policy to help deal with the bumps in the road that may come your way when you least expect it. Think of this as your shock absorber!
Over time the funding goal for this fund should be 10% of the business's annual gross income.
Most growing business owners need a clearer understanding of whether their cash flow is working for them or against them. These simple tools and tips can help you manage your cash flow and plan well ahead. Increasing the probability of having a successful business.
With good cash flow management comes better decisions and less stress about money. And if you’re a business owner looking to take charge of your finances and sidestep the overwhelm, you can get in touch with an Accountable-accredited Financial Coach through our FREE 30-Minute Coach Match session!
This is a simple no-obligation call that’ll help you get a better idea of whether coaching is something you need. And if you do choose to move ahead, this call will help us connect you with an Accountable-accredited coach who would fit your business’ needs and ambitions the best!
My name is Kim Heimbach. My wife Loree and I were married in 1974. Loree and I employed financial principles that have allowed us to meet most of our life goals. One of my key goals was to retire from my corporate position at 56 years of age. Upon reaching that goal, I started coaching others on these principles that guide us to this day. The goal is to help families and business owners free themselves from the financial stress they are facing and experience a transformation where finances are a tool for living and not a barrier to real happiness. Having the opportunity to coach others is a real blessing to me. I get immense satisfaction from watching my clients grow and thrive.
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