In a recent blog, I shared my 7 warning signs your business might be headed for financial stress. I recommend any business owner read this post and consider how easily you could fall into strife if you haven’t taken care to perform a regular financial health check for your business.
This tragic decline is very common in all business types regardless of size or industry. To a business owner, this can be a very distressing situation to find yourself in. Luckily, there are five simple steps you can carry out to ensure your business doesn’t enter the pathway to decline.
1. Create a 2-year cash flow forecast.
The first thing you must do is create a two-year cash flow forecast. A cash flow forecast allows you to know when money is coming in and out of your business. With a vision spanning two years into the future, you’ll identify problems before they arise.
2. Update your financial accounts every week.
For small business owners, it’s easy to get snowed under if you aren’t in the continuous habit of updating your financial accounts. If you’re updating your statements at the end of every week, you’re more likely to be on top of it when things don’t quite add up. It’s also hard to remember what that parking receipt was for when you’re looking at it 6 months later. The last thing you want is to be chasing months-old receipts and bank transfers to figure out what went wrong.
3. Review your actual business performance against this forecast every month.
Without comparing your vision against reality, you’ll never know whether you’re on the right track. Analysing the ways in which you deviate from your forecast can also help to create more accurate forecasts in the future.
4. Adjust your forecast and/or your business based on this monthly review.
One of the biggest mistakes small businesses make when it comes to cash flow forecasts is the ‘set it and forget it’ mindset. Don’t file it away soon after its creation; your forecast should be a working document, constantly being reviewed and refined to ensure the greatest accuracy. If you follow the steps outlined above, this document will become more and more accurate as time goes on. This allows you the confidence to know where your business is headed and the ability to identify problems before they arise.
5. Seek help quickly via a qualified business advisor.
If you find yourself in over your head when it comes to managing the finances of your small business, there is no shame in seeking professional help. No matter how bad your financial situation, the likelihood is any experienced financial advisor will have seen worse. Don’t be afraid to reach out and put your hand up for assistance if you need it.
Remember, even by following these steps any small business will still face financial challenges. With this system in place these challenges won’t cause you unnecessary stress as you will have a high level of awareness and the ability to rectify any issues quickly while they are still small.
If you’d like help simplifying the process of creating a cash flow forecast for your business, try REEP. Our visual projections of real-time financial data show a clear vision of your financial future anywhere, any time, from any device.