Cashflow is king II - turning on the light

Turning on the light is simple enough: all you have to do is spend a few minutes in front of a computer running a spreadsheet program. You can use paper and pencil, but that’s really making life hard for yourself because cashflow is a dynamic, ever changing series of scenarios. Spreadsheets are made for that type of thing. So no excuses: learn the basics of this stuff. The process is simple once you get started – and it will illuminate the finances of your business.

“Illumination is the way you dispel fear – like banishing the scary noise in the night by daring to switch on the bed-side light.”

Open a new worksheet and call your first column ‘Details’. Leave the next column for fixed regular payments (such as rent), then assign the columns to the right of it to months. You can break this down even further into weeks, or days if you’re desperate (and we all get into desperate cashflow situations from time to time). A three-month forecast with each month split into two halves works very well, but it’s a matter of personal choice. See a sample of a blank cashflow spreadsheet here. And a working example here.

In the Details column, list all the income you expect to be able to bank that month, with a sub-total, followed by all anticipated expenses, along with another sub-total of those costs. Then take your current bank balance, add the income, subtract the expenses and make a new ‘expected’ bank balance at the end of the month. This is simple maths and the spreadsheet will make it even simpler – change one figure and the totals change automatically. Carry forward your bank figure to next month and repeat the process. You can easily fill in your fixed monthly costs (like rent, lease payments or wages) and within a few minutes you have a cashflow forecast – a major step towards running your business properly.

The spreadsheet doesn’t have to be sophisticated, but it will instantly tell you what’s going to happen if your current client doesn’t pay your invoice on time. This information will influence who you work for, when and on what terms. If you know you need 50% of the fee in advance or you can’t afford to take the job, you can negotiate from an informed position. If you know you aren’t going to be able to pay for something until a month after the bill is due, you might be able to negotiate that at the start and agree terms that work for you. It’s surprising how flexible other people can be about payments if you approach it from a position of being informed.

Illuminating the cashflow is possibly the single most important thing any small business can do. If you don’t do it – make sure someone else does it for you. Don’t give in to the urge to bury your head in the sand, or throw your hands in the air saying you don’t understand these things or you have more important creative things to do. If you deal with it, it will enable you to do the things you really want to. If you don’t deal with it, there will be a haunting certainty about the future.

So, armed with the facts, what do you do about it? How do you go about getting paid?

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