It doesn't matter how much money your Ringwood business generates in the future if you don't have enough cash to pay your bills today. In fact, more businesses fail due to a lack of cash than a lack of profit.
Profit is the difference between income (recognized at the time the sale is invoiced) and expenses (recorded at the time the bill is received.) When your business generates more income than expenses, you are making a profit.
Cash flow is the difference between inflows (actual cash received) and outflows (actual cash paid). When you have more cash coming in than going out, you have positive cash flow. On the flip side, unanticipated cash shortfalls can damage your credit and ultimately cause you to close your doors in Ringwood.
Cash flow projections are among the core financials you need to run your business – and doing this is easier than you think:
Start with the amount of cash in your current bank account(s).
List anticipated inflows, including the amount and when it will be coming in.
List anticipated outflows, again including the amount and when it will be coming in.
Put it all into a spreadsheet in chronological order. If at any point you have a negative cash balance – you have a potential problem.
Most folks are optimistic when projecting cash flow. I challenge you to repeat the above exercise and be extremely conservative. Estimate slower inflows and sooner outflows. Do you get a different result? Is your cash flow negative? Let’s talk.