Cookie starts with C.
So does cashflow.
Is your cash flow good enough for you?
What is cashflow?
Cashflow is often quoted and not so often explained.
It means having a flow of money in more than your flow of money out.
Not enough cash to meet your obligations equals one bust business (or insolvency as it’s called).
Remember Natwest’s computer system crashing? The problems created were mostly cashflow ones.
Do you depend on money being deposited at a point in time?
What level of cashflow is good enough for your business?
Have a look at your business expenses.
Too many of them for the flow of money coming in makes your business vulnerable.
Tax-deductible expenses are great (those that come off your tax bill): they still need to be paid up front.
- How much money do you need every month to cover your essential expenses and obligations, including your drawings (the money you take out to live on if you’re a sole trader) or salary (if you’re a limited company), and tax and National Insurance etc.
- How much extra do you need for savings to cover emergencies, sickness etc?
- What would happen if several clients left at once or a lot of your clients paid late or not at all (bad debt)?
Identify at which point you’d have a problem.
What level of cashflow is good enough for you personally?
You’re a micro business or a freelancer right?
Do the sums above with an eye on what’s required for you personally since you are your business.
Aim for a situation where your essentials are covered even if your business has cashflow issues.
Think about what you need to relieve pressure – mortgage payment, food, utilities.
Stress is an energy sucker and gets in the way of taking action. Even the process of working through the sums can help you feel more in control.
[Cake also starts with C. Chill out and take a moment to have a slice]
[Deep breath, we’re onto Late Payment Causing Cashflow Crisis]
What level of late payment is good enough?
Cashflow with one late payment can be fine. More than one late payment, those bites add up, and no cashflow.
No cashflow for long enough, no business.
- How many late payers before you have a problem?
- How late?
- What about all the time spent chasing?
- Factor that in as well.
- Have you added loss of productivity because of stress?
When late payers don’t cause stress because they aren’t affecting your cashflow, that’s the situation we want.
Crunch some data – with a cuppa and a crunchy biscuit preferably – and get to know your numbers.
Post your numbers above your desk. View it as roofoverhead/food/clothes/chocolate/gadgets/shoes.
Because it is.
Income looks like cashflow, but you can’t eat that.
C is for cashflow. Is your cashflow good enough for you?
What are you going to do now to help yours? Tell me in the comments.
Apologies and credit to the Cookie Monster (Registered trade mark)*.
*I have tried hard to make sure I don’t infringe any rights in this post. If anyone legal is reading and thinks I have, please email me.