Cash flow problems can cause otherwise successful businesses to go bust. This is a truth that bears repeating, which is why this about the third article in which I have repeated it!
Small businesses are especially at risk as they may not have reliable access to sources of finance, having to turn to loans to get them out of trouble, which will, in turn, negatively affect their future cash flow.
I was going to start by saying ‘a picture is worth a thousand words’ – but you all know that one already. Financial charts are great ways to get across the story of your business, even if that story hasn’t happened yet! So rather than just using charts to convey dry information, I’m going to talk about using charts to tell stories.
In today’s blog post, we take a look at one of the new training videos. This video goes through the basics of Brixx, it’s a great starting point and highlights what you can do in a Brixx plan and how you do it.
Brixx is a tool for business planning. Some of the entrepreneurs I have spoken to have said “I don’t really think about planning”, or “I’ll just leave that to my accountant”. I think part of this reticence about getting engaged with financial planning is due to it being seen as overly complex. Something for a trained professional. We have tried to remove these barriers of complexity, to demystify finance. But if you’ve not started a business before, what can you draw on to try and understand how to forecast and plan a business?
As I proposed last week, planning a business does have some striking similarities to personal financial planning. So what are these? Surely business planning is completely different?
The cash flow statement is one of the more common reports used by accountants. It is a measure of all the incoming and outgoing cash activity of the business and is usually estimated at a monthly level. You may think that all that matters is your profit margin but cash flow is critical.
The key difference between a cash flow forecast and another report like the income statement is that it’s all about timing. When cash is parted with or received is vitally important. It will not take into account future sales received on credit. It’s a true reflection of your bank accounts inflows and outflows. Not what might be, but what is.
Last time we looked at what a financial model is in general terms. So how does this compare to traditional financial planning? In small businesses and startups, planning often takes a back seat to hard work and the pursuit of new opportunities. When planning is done it tends to be quite different to modelling, but the data to do modelling is all there.
It’s something that you hear people repeat time and time again. And it’s central to the self-employed revolution. If you do something you love, it doesn’t feel like work. If your work is something you love doing, then the issue of work-life balance disappears forever.