Too often, entrepreneurs get carried away and crow about the last big deal they pulled off. But for all the hype, look under the skirts of the business and you’ll find they don’t have any money in their bank accounts. Why?
Because their business cashflow management is so lax and the cycle of quick money in, quick money out, repeats itself again and again! Revenue and profit are as important as each other. But more significant is cashflow.
What is cashflow?
Cashflow is having enough money in the bank to cover outgoings. In business, revenue can be cyclical. Some expenses are specific, others, such as staff wages, occur all year. It’s important to ensure you have enough in the bank to cover these.
Here are my top 3 tips for effective business cashflow management:
Plan for taxes: Some businesses transfer a share of revenue into another account to cover taxes. Separating it out when you receive payments means you know it isn’t ‘yours’ to spend and you’ll have cash when the bills come.
Create a financial calendar: Along with all your dates for your gigs, events and product launches, add due dates for your payments and returns.
Cashflow projection: Map out your estimated revenue for the year based on when your events or product launches are, and how much you expect to sell. Add in expected expenses/costs, and each month keep track, comparing actual figures to your estimates so you know you’ve got money in the bank to cover everything.
Solving an existing cashflow problem
Despite your best efforts, sometimes unexpected costs arise and your cashflow is squeezed. So what can you do if there’s already a cash flow problem?
Collect debts: Get on the phone and ask for them now.
Reduce expenses: are there expenses you can cut/delay? Get longer payment terms from suppliers.
Increase revenue: launch a new product, run a webinar, do a special offer on products to generate more revenue.
This clarifies how important it is to manage cashflow. Alternatively, get an accountant to manage your business finances as good expert advice can make a real difference.
You can run the triage system I use. Take taxes out as they aren’t counted as income. A slight overestimate will be a bonus at the end of your tax year. What’s left is the income from your business.
The system works like this:
A third of your cash is wages. Don’t just spend the money and don’t give it all to the business. Separate personal and business costs.
Another third is running costs, such as bills and wages for staff and outsourcing.
A third is for business development, such as marketing and new products.
Do you have a great process to keep on top of business cashflow? Then share it with the CoSydney community as it may help someone who is struggling right now.
It’s as simple as 1… 2… 3…
We’re here to help you to take action just like we’ve helped thousands of other entreperneurs, artists, designers, and creative professionals all around the globe.
Now is the time to let your passion SHINE.
Now is the time to Make Tomorrow Today!
To your success,
Vinh Van Lam CoSydney & ArtSHINE