A man walks into a bank, pulls out a gun and says to the clerk, “Give me all your money. I need to set myself up in new social enterprise. I need initial investment until my cash flow is established.”
The manager turns to the clerk and says, “You’d better do what he says, I think he means business.”
How right our robber is, any social enterprise, no matter the size or how long it has been established, needs to have a robust cash flow. Like any other business, lack of cash is one of the biggest reasons for small business failure.
So, what is cash flow and why is it so important?
Quite simply, cash flow is the money that is moving in and out of your business every month. A cash flow forecast is the projection of these figures for at least a year. A realistic cash flow forecast will allow you to make informed business decisions and strengthen your business knowledge.
Did you know it is possible for your business to be making a profit but have no cash? Profit on paper will not pay bills. Many profitable businesses have failed due to cash flow problems.
Some of you may have already switched off at the mention of money and cash flow. Many new entrepreneurs feel guilty about making money and profit, there is almost a feeling of it being “unfair” to try to make money from doing social good.
If you are of the opinion that you only need enough money to cover the running costs and take a small wage for yourself, then I would suggest you have a job not a business and you will find yourself investing your own money, working long hours paying everyone else, having very little security and a poor return for your effort. Burn out is inevitable if you overload yourself with social responsibility at the cost of your own time and money.
It has become apparent to us that budgeting skills, which are a fundamental tool for everyone in life, are not taught in school or in many other further education establishments. We can train and produce world class academics who simply have no idea where to start with their finances. Some graduates feel it’s ok to not make money for the first 10 years of business simply because that is the norm in their particular sector.
Creating a sustainable business that 1. does good and 2. makes money, should be the aim of any social entrepreneur. To achieve the first goal, you need to have sound knowledge and plan of what is required to reach the second.
This is where cash flow management comes in.
Cash flow can be particularly challenging at the start of a business. You will find that there are many expenses and cash is flowing out quicker that it is coming in. It may take you time to establish customers and sales, therefore you will need a temporary source of cash to get you into a positive cash flow situation.
The first six months of any business is a critical time for cash flow and, if you do not get it right, chances are you won’t succeed. It is vital that any new business can predict its first six – twelve months outgoings, including any drawings to cover personal living expenses for the owner.
The Circle Academy
We are leading the charge here at The Circle Academy to support new businesses. We have seen first-hand, talented and driven people with great ideas to make a difference but unable to turn it into a business.
We aim to teach you how to prepare your cash flow for a proposed business or improve your financial plan for an existing one. We will guide you while you develop your plans and think through and assess your ideas.
We will teach you financial habits used by successful business which will lead to better results and, more importantly, less stress and burnout.
Whilst money might not be your driving force, by being realistic with your finances you will understand whether your goals are achievable and how small changes can make a big difference to your business.
Understand your cash flow and you will understand your business.
Cohort 3 of The Circle Academy begins on 17th September 2020 and will run until 4th December 2020.