Businesses must plan for cash flow

This is the second post with Seth David on the single most common accounting mistake small businesses make. Seth says companies simply don't plan.

Many businesses fail to do this, and they HAVE TO!

The Business Visionary

They know they can go out and make money – you get a visionary with a great idea. Maybe he has the start-up capital and the marketing skills. So he goes at it with all of the passion needed to start it off.

Then as time goes on he starts to wonder why there isn’t more money in the bank. Then he finds himself (or she finds herself) struggling to make payroll.

We know this is normal for a new business and some might even say a requirement for every entrepreneur to experience. At some point the visionary finds me and asks me to help them understand where all the money is going.

What the Business Visionary Overlooked

Invariably what I find broken down simply is that they failed to plan ahead. They failed to sit down and add up their expenses ahead of time to see at a minimum what they needed to bring in to pay for everything and still make a profit.

They forgot to consider that the startup capital came with a payback requirement and interest. This affects cash flow. There are many factors that come into play that we don’t/can’t anticipate – so it is critical to have a plan (forecast) and to review it every single month.

Financial Basics

I have a very robust spreadsheet that I’ve created that lets me export my financial information from QuickBooks each month so I can look at my income, expense, and cash flow forecasts. I have both my corporate and my personal tied in because the money flows that way- from my business to my personal and then out to the bank to pay my mortgage.

Click here to read the first post on why businesses need to plan for basic financial information