The road to being a successful salon can be a bumpy one if you don’t keep an eye on your bank balance. While making a profit and measuring it is important, this often does not accurately reflect the timing of utilising the business resources. A good cash flow forecast can go a long way to helping you keep on top of your finances, in turn allowing your business to grow successfully.
What is cash flow?
Cash flow is about the change in accessible money available to your business that can be used to pay suppliers, employees and others. Arguably you should plan for what you believe to be the most likely situation and then assume that the cash coming in will not be as good. Ranging from a delay in receiving payment to overestimating your business growth, a cash flow forecast must consider all eventualities and be calculated sensibly to work effectively.
The pitfalls of no cash-flow forecast
It could be said that a business is at its most vulnerable just as it starts to become successful. It can be tempting to pretend you are on an episode of The Apprentice and use all your business cash to invest in more product. However, you must consider what would happen if custom dried up and cash was in short supply, yet you still had to pay your supplier or employees. A forecast would help you predict these situations before they occur, enabling you to put a solution in place. Think of it like an early warning system to help your journey happen more smoothly.
This isn’t the only circumstance where a cash flow forecast would be not only beneficial but required. Should you ever need to loan money from the bank, they will want to see a forecast of profit and cash that has not only been well thought through but is also realistic.
Preparing your business’ forecast
Fortunately, cash flow is not a new concept and there is plenty of help available from financial advisors, banks or accountants. The process cannot be successfully completed however, without input from those who understand your business best – you! Take some time to sit down with your accountant and discuss your plans and thought processes for your business. They will be able to advise you of the best way to carry them out while still balancing business resources.
For more information on how to plan a cashflow forecast, visit the NHF website here.