Welcome Founders!

This is the fourth and final part in our “The importance of focussing your business” series, part 1 being an overview, part 2 was on Documenting the Founder Goal and part 3 was on Aligning Business Performance. Today, it’s Cash!

There’s a wealth of information and consultants looking at how to improve sales, broaden networks, grow your business etc. This article isn’t about that. Instead, we’re going to look at the top 3 things that you need to do/know to properly manage your cash.

1. Do a Forecast Cashflow

If you don’t currently have at least a 12-month (preferably 2 year) forecast, stop reading and go and develop one now. It’s that important. We suggest you use your favourite spreadsheet application because it is easier to update.

As you do your forecast, ask yourself why you have chosen the number you have. For revenue, is your number based on existing or new sales for instance? Make notes of your assumptions, because these are the metrics you need to hit to get your cash and should therefore be the basis for monitoring your performance. For example - if your sales rely on you making 3 calls to customers per week, that’s your target metric.

Review your forecast whenever you have time during the month to see how you’re performing. Update it quarterly, especially if you’re looking to raise funds. Investors will want to see an up to date version.

2. There are two (2) investor credibility hurdles

When you are looking for cash and considering potential investors, businesses typically focus on the financial returns from the product or services. That’s important and you’ll need to devote time to ensuring that your case is compelling. However, there’s a second one, which often gets overlooked.

Are you credible?

Investors have different risk profiles which colour their investment decisions. However, Management Risk has derailed (or carried!) innumerable pitches.

Essentially the question is:

“Does the Investor believe that the Founder and the business are trustworthy and can execute the proposed plan?”

To answer that question, you’ll need to show that they can trust you to stay on the course you have pitched them. Implementing good governance practices is one way to do that. There’s lots of other ways, but if you’re not professional and reliable in your dealings with them, you’re making your job harder.

On the upside, credible Founders can sometimes sign up investors based solely on their past track record!

Remember - you’re not getting any cash until you’ve satisfied all their requirements.

3. Don’t kid yourself

Even if you don’t have a forecast (go back and re-read 1 if you don’t) you’ll have an idea of how your business is going from a cash perspective, because if you’re stressed every time a bill comes up for payment, well, that’s not a good sign is it? If your accountant/bookkeeper is raising flags, don’t ignore them.

Having surplus cash in the bank is a good indicator that things are going ok. You’ll need to decide what “surplus” cash means though. Even then, remember that some cash outflows are periodic (eg Quarterly ATO BAS) or maybe you’ve ordered new equipment or your business is seasonal?

It’s your business, so do yourself a favour. If you have concerns about your cashflow, get help. Don’t blindly assume that future sales will continue, or that big contract will be signed!

Oh, and don’t assume the ATO won’t chase you for outstanding amounts. ATO enforcement action is ramping up – and that’s definitely not a good place to be.

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Thank you for following along with this series. As always, our comments come from our collective experience and are designed to help startup and small business founders improve their business with the foundations for success.

We hope you have found this series useful and, as always, we welcome your comments and feedback!

Next time, we’re going to talk about something that you’ve probably been thinking about as you read these articles “When am I going to get time to do that???”.