4 Cash Flow Errors to Avoid at All Costs

Posted on 15th September 2017 in Business

Written by Freya Hughes

As they say, knowledge is power… With that in mind, here are the main cash flow mistakes we hear about from our community of business owners and advisors, which you can now avoid at all costs!

A massive 82% of SMEs fail due to poor cash flow management skills/poor understanding of cash flow. Now if you think about that next to the 650,000 startups that registered in the UK alone last year, that’s an enormous 533,000 businesses going under in a year. Here at FUTRLI we know how important, stressful, fun and agonising it can be to run a business, therefore we’ve put together our top 5 cash flow errors to avoid, so you can focus on the positives and make sure you can be in the remaining 18%.

A real life example of this comes from Remarkable Practice‘s Paul Shrimpling, who was part of his family’s upholstery business from the early days. After decades of trade, it was about to close its doors after Paul was taken ill and was unable to work. This meant the company lost its head of sales, so its cash reserves depleted to near closure. Working tirelessly for 13 weeks using KPIs – but these are key predictive indicators, rather than the key performance indicators – the team recognised their responsibilities and collaborated. The team was streamlined and eight KPIs were reviewed every week. The fact the team worked towards the same goals meant that their results drove the success of the company and the cash issues were resolved. Hear his full story, and some insightful tips for implementing KPIs here

1. Having unrealistic expectations

A chess piece looking in the mirror

It’s great to dream big, but know what’s within your business’ capabilities and grow sustainably

Having a cash flow forecast is going to give you confidence to make predictions with insight – and act accordingly. Protect yourself and your company by putting your figures into a forecast, and you can start planning your future.

Managing your expectations mostly comes down to communication, just as we saw above with Paul Shrimpling. If you can fully trust your team – managers and higher up staff especially – then you should all feel comfortable enough to be transparent. Frequent meet ups to discuss your results and figures, the trajectory of projects and sales, will see the day to day operation go a lot more smoothly. Maintaining an ongoing dialogue with your team is going to give you a springboard to bounce ideas around, and is likely to give you time and space to think of a plan B if necessary. Remember that other than you, your team know your business best. Use their creativity and points of view to diversify and expand ideas.

2. Overestimating your future sales

We know that there’s no way of predicting your incoming cash to the penny, which is why scenario planning is ideal for when you’re not exactly sure about what might happen. It would be unrealistic and somewhat arrogant to decide you’re probably going to get a 50% sales increase for the next period if you’re not upping your offerings or have some seriously big clients lined up. If anything, you should underestimate your sales volumes so you can prepare yourself for the worst, but (hopefully) be pleasantly surprised if/when you beat your target. Create a base assumption and build variations on top to really get the most of scenario planning.

Every business owner has questions about what’s next, from hiring to expansion you need to get an idea of what’s possible. Explore every possibility you can think of with scenario planning and see how things could pan out. With you in mind, this feature has been made so that sales tax, debtors, creditors and cash flow movements are all automated, so you can concentrate on what matters.

3. Ignoring your budget

It’s a story we hear over and over again – an entrepreneur creates a budget and files it away, never to be consulted again. Perhaps you glance at your budget from time to time, but that’s simply not often enough. There’s a fair amount of business owners that aren’t aware of the differences and benefits of using both a budget and a forecast. Think of your budget as an A-B printed roadmap. It should get you to your destination, so long as there have been no recent changes to the roads. Your forecast, on the other hand, is comparable to a sat nav. It’ll update in real-time and alert you to when you need to change your route.

We recently caught up with Ian Laing-Bennett, Owner and Operations Director of estate agency Laing Bennett in Kent, UK. Ian used to feel like his cash was spinning out of his control, until he adopted real-time forecasting which revolutionised the way his business works. He told us:

“FUTRLI takes looking at our budget to the next level. It’s helped us an incredible amount to keep our cash flow under control and monitoring where we are.”

Continuing to explain, Ian uses FUTRLI to look at different ways they can do things: when they can hire staff, what effect those staff have on their bottom line and more.

Using these features has saved them money because they can really drill down into their budgets. The team can identify where they need to make savings, or if they need to renegotiate with a supplier, and can easily put that into a scenario, which will show what the result is likely to be. Read the full case study here.

FUTRLI Co-Founder Hannah Dawson puts the differences as…

  • A business budget provides a blueprint for your company’s desired success, and an accurate measure of how it is performing, year-by-year.
  • Budgeting is the starting point for (what we believe to be) an even more important measure of success, your cash flow forecast; a vital piece of financial scenario planning for any company.
  • A business forecast is all about now. It can be referred to and relied upon to help make business and operational decisions, eg staffing adjustments.
  • It’s a real-time log of your activities, which allows you to make business decisions with confidence.

The important thing here is to recognise why both are crucial. Simply, your budget lays out your plan for where you want your business to go, while your forecast shows where the business is actually headed. Keeping your eyes firmly on both of these tools will bridge the gap between reality and your dreams, so if your business begins to show signs of going off course in either dichotomy, you’re going to be able to prevent damage instead of trying to repair it. Both your forecast and budget should reflect your plans for the future but are based on past experience.

4. Not leaving yourself a buffer

Sometimes your’re going to need to dip into your cash reserves. But remember, rule one of business is never to completely run out of cash. Having some liquid assets and, preferably, some extra cash hidden away is the best idea you’ve ever had. Liquid assets are easily converted into cash, with little to no impact on its value.

Using your assets to reinvest in your business and help it grow sustainable. You could hire more staff, acquire new stock, and make improvements to premises. It also allows your business to settle debts, return money to shareholders, pay expenses, and most importantly future-proof against any unforeseen financial pitfalls. If your business’ liquid assets are increasing, it often means your business is healthy.

If, like many of us, you sometimes can’t resist splurging out on some “essentials” (read expensive coffees, beautiful trinkets and more) FUTRLI has the perfect feature for you. Getting alerts set up in your account will tell you when your cash is getting down to a pre-set amount, helping you to think twice about your spending, and basically monitor your business while you sleep. You’ll get a notification telling you to slow down your spending, which will also save you time checking your forecast daily.

 Keep control of your cash flow with FUTRLI

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