03/10/2012 - 03:22

Micro financial view achieves macro vision

03/10/2012 - 03:22


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Micro financial view achieves macro vision

A VISION for growth and a strategy to achieve it are essential pre-requisites for any principal or CEO serious about growing their business. This strategy is most commonly written down in a business plan.

The written form tends to act as a business compass - providing clear goals and a timeframe to deliver; those who follow this pathway are more likely to be successful in achieving their aims than those who leave things to chance.

Keeping clear visibility of your finances

From a control perspective, a business plan needs to be supported by a financial plan. A view three years forward on the ‘shape’ of your business finances is an ideal starting point, and will help you understand the finance you require to deliver your business plan, whether this can be delivered via your own resources or whether you will need to bring in funding from outside the business.

The key information you will need to project for any external funder (including normal bank funding) includes, as a minimum:

  • profit and loss projections (by month);
  • cash flow - receipts and payments (by month);
  • balance sheet (by month); and
  • source and use of funds by (month) - this reconciles profit projections with cash flow.

A clear link to your business plan, with statements on the key assumptions you have made, is also essential.

Even if you are in the fortunate position where you are likely to have plenty of finance without going outside the business, you should adopt the same approach in terms of producing forecast information. In this way, you know how much cash you are likely to need and when.

In the real world ... things change

Keeping your vision and business plan fresh, and having a strong management team and well thought-through financial forecasts, will go a long way to raise any necessary funds for your business. This is essential to keep control, and having a clear, up-to-date financial picture of your business will allow you time to grow your business without the constant worry of not knowing quite where you are and whether you have the cash to support your plans.

If you can, keep forecasts updated at least once every quarter and, in times of constant change, ideally every month.

Nine-week forecasts

Regular forecast updates to your ‘big picture’ will give you great visibility and alert you to longer-term issues you should be thinking about. For strong management of the cash line in the short term, a nine-week forecast of receipts and payments will put you firmly in the driving seat and give you a chance to adjust things so your cash flow remains in control.

This week-by-week view can usually be done without any external support, as the money you are likely to collect and pay will have already been entered in your accounting system.

It’s then just a case of figuring out which are the weeks you will receive or pay money. If you then commit to update it once per week you will always have a picture of what your cash position is likely to be for the next nine weeks. If you can see at any future point you may be short of cash, you then have the opportunity to re-schedule things to make it all fit.

This simple tool has been the salvation for many small and medium-sized businesses. If you expect your business to be under any form of cash pressure in the near future, start it today.


Rupen Kotecha is Perth regional director for the CFO Centre. Contact Rupen on 1300 447 740 | rupen.kotecha@cfocentre.com.au


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