- Posted by: MGK Consulting
- Category: Business Advice
Whether it’s by scribbling on the back of an envelope or through elaborate worksheets, the fact is each one of us plans for their personal cash. Spending is determined by personal goals (short and long-term) of the individual, disposable cash available and priority of expenditure. Note that whether consciously or not, goals come first and these consequently inform the priority in which cash is allocated.
If the aim is to take a loan in the next six months, for example, and a cash collateral of X amount is required, then setting aside some funds towards this will be among the cash allocations. This cannot happen without having that goal in mind, in the first place, and hence the importance of goal setting. And this simple approach can apply to your business as well.
As a business owner/manager, you need to establish your immediate, short, medium and long-term goals before sitting down to plan for your cash-flow. Immediate goals is paying for your operating expenses – rent, supplies, salaries and other day-day business running costs. Short-term goals could be purchasing office equipment, building some cash reserves to cater for uneven cash inflows etc, while medium and long-term goals relate to business expansion and growth.
With this in mind, you will not only have a guideline on the allocation of cash resources available, you will also have an idea of the future cash demands of the business and hence start planning early how to fund cash short-falls or, if in that fortunate but rare position, plan on how to invest/maximize returns or excess funds. Without trivializing cash-flow forecasting and management, any business person can be able to list their goals, identify their timing, attach a cost to them and basically come up with a rudimentary cash flow plan, even on the back of an envelope. Use of other tools is just an extension and improvement on this.
Yet the challenge is that most business people do not take time to do so and hence the perpetual “cash-flow” problem that plagues many a businesses. This is a wake-up call to you; the entrepreneur. Set aside time to think through your business needs and related cash flow requirements and put this down on paper.
This will be a giant step on the way to better cash and cash-flow management.Financial advisory professionals can assist you in this cash-flow planning process but do not make that call before you have gone through the process yourself. You are best placed to know your business and its needs and you must own and immerse yourself in the process for it to bear fruit. You just may be pleasantly surprised that the call won’t be necessary after all!