In all the conversations that I have with small business owners about running their businesses, one thing stands out above the rest as the thing that keeps them awake most at night – the ability to pay their bills, salaries and taxes on time.
Paying the bills seems to trump winning more business, collecting money from customers and dealing with people (by the way, this wasn’t a formal survey, just a collection of the anecdotes I hear).
Now, of course, we all know intuitively that winning business and collecting money from customers directly affects the ability to pay the bills, but the relative disconnect between the two is striking.
So, if you as an entrepreneur are going to enjoy a good work-life balance, as well as build a successful business, how can you know that your bills can be paid as they fall due?
Well running a profitable business helps. Now, I know that sounds obvious, but if you’re making more money than you’re spending, you’ve got a better chance of building up a positive balance in the bank than somebody who isn’t.
Profit, though, doesn’t always equate to cash. You can be showing a profit in your accounts, but still be constantly short of money if you’re not managing the cash well. This could be because you’re sitting on a lot of stock, can’t collect payment from your customers fast enough or you’re taking too much money out of the business in drawings.
Secondly, you need the information at your finger-tips when your harmony is likely to be disrupted. Let’s face it, if you know in good time that there might be a problem, it gives you plenty of time to fix it.
“Oh God, don’t tell me I have to create a cash flow forecast”.
No, you don’t. And that’s because there are tools out there like CaFE which do all the forecasting for you. All you have to do is plug them into your cloud accounting software and the application will do the rest, even while you sleep.
Thirdly, you need to know what to do when your forecast tells you that money is going to be in short supply just at the point you need it. Which customer should you chase? Are there any other payments that you can delay? Do you need to have a chat with the bank or another lender?
If you do decide to borrow, you’ll need to be armed with all the information the lender is going to ask for to establish how much you need, for how long and if you’re a safe bet.
Doing all of this and running the business is pretty daunting, even if you’re comfortable with finance. If you’re not, it’s enough to make you wonder why you started the business in the first place.
Well, don’t despair, because we’ve created CaFE to solve the problem of you not having enough time or experience to create a good forecast and an accountant that’s insufficiently close to your day-to-day business to provide practical help. CaFE will alert you when money is likely to be running short, tell you which impending payments are likely to be the cause, highlight the money that you need to collect and create the longer-term forecasts and management information for a lender if you need it.