Business Cashflow - Holding out 'til Profit

You'll often hear of businesses having "cash-flow" problems. That is, the cash going out exceeds the cash coming in and so the money runs out.

If you ever go to your bank for a business loan, one of the things you'll probably be asked for is a "cash-flow forecast".

This is usually a computerised spreadsheet showing the income you expect and when you expect to receive it - and the expenses you expect to pay and when you need to pay them.

When you're starting a new business, it's unlikely you'll have an income or positive cashflow for a while until the business starts to get established.

During this time however, you are still going to have expenses … normal living expenses, expenses to run the business, the car, service loans, pay for advertising etc.

This is when you need to have enough funds put aside to "carry you through" until your income exceeds your expenses. Obviously, you need to keep expenses to a minimum during this period, otherwise you could run out of money very quickly.

Your Business Plan should include a schedule or timeframe of when you expect your business to become profitable.

You should expect to start making at least some small amounts of income soon after commencing business.

To create a simple cash-flow forecast, create a spreadsheet on your computer or take a calendar or diary and on the date your business is due to commence, enter how much cash you'll start with. We'll call this your "account balance". Now enter the dollar amounts of expected income and expenses on the dates you expect them to occur. After each entry, calculate the new balance of your account.

This will give you an idea of long you can keep paying your expenses until you start making a profit (or run out of money).

If you don't have a large cash reserve, don't let it stop you. You can still start your business and do it part-time while working your normal job. Once your new business develops a regular clientele and income, you'll have the confidence to give up your regular job and work at your business full-time.

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