There are several indicators that business owners and managers must monitor regularly in order to identify the factors likely to affect the viability of the enterprise. One of the most important, least understood and often ignored is cash flow. Without an understanding of its role in day-to-day operations, many otherwise promising businesses struggle and finally succumb when the economy takes a downturn.
Cash Flow Does Not Equal Profit
Cash flow is often confused with profit, but they are two different things. Profit is the surplus left when all the expenses of the business have been accounted for, while cash flow is the movement of cash into and out of a business. If this is not monitored, the situation could arise where the business is making a paper profit, but lacks immediate cash to pay bills or wages.
There is a proven way to avoid this situation and this is something we can help you with. If you are a small business owner struggling to keep the doors open, Charter Partners can show you the danger spots in your business cycle, and help you make a plan to avoid such pitfalls in the future.
Which Issue to Address First? Check the Financial Forecast for a Clue
Financial forecasting is the tool we use to show owners how to gain greater control over their business operations. One of the challenges faced by managers every day is to decide which of many competing priorities are the most urgent. Some issues can be allowed to slide while others must be dealt with immediately.
We provide our client businesses with current reports that alert management to any deviations from what has been forecast. These deviations must be investigated quickly to determine the cause and any effect on cash flow. Depending on the outcome of this investigation, corrective action may be needed immediately to protect the cash position.
The Consequences of Not Meeting Targets
Every financial forecast is built around clear targets and goals, providing the business with a sense of direction surprisingly absent in many small businesses we have dealt with. At any point in the business cycle, if these targets and goals are not met there will be consequences such as a lack of capital at a stage where cash will be needed to fund expansion.
Need Help Interpreting Key Data?
Along with the expected profit and loss and balance sheet forecasts, our program also provides the all-important cash flow forecast. Our professional staff work with the client management to show them how to interpret this and other key financial data so they can prepare subsequent reports and make sound decisions based on the results.
A thorough financial forecasting program such as ours will give you the ability to manage cash inflows and outflows, allowing you to take advantage of future opportunities with confidence.