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Managing Cashflow for Growth

Cashflow is not just accountant-speak. Cashflow is all around you. Case in point: as a business owner, you might have had the experience of coming up with a brilliant revenue idea, with the potential for huge profits, but you had to let it go. Why? Because you didn’t have the funds to finance it until it became profitable. That’s cashflow.

Checking your bank account balance is a very blunt indicator of cashflow; it might mean a good or a bad surprise depending on the day, but the simple fact that the number on your account could come to you as a surprise is a giveaway. Somebody who is accustomed to thinking in terms of cashflow is hardly ever surprised about their bank balance: they knew it would reach that particular number on that particular day, or during that period.

So how do you take control of your cashflow? You need to do three things:

  1. Fit all cashflow information neatly into four quadrants.
  2. Based on the quadrants, develop a set of projections.
  3. Remember two guiding principles: time is of the essence, and knowledge is power.


First quadrant: money coming in

Let’s start with money coming into your account, because without it, there would be no cashflow, just overdrafts. To get a good feel for how money flows into your account, you should make sure you:

Understand your sales cycle

Let’s say I have one client who pays on the 4th of every month: this means they process invoices during the last week of the month. If I send them the invoice on the 1st, it’s too late: I won’t be paid for another five weeks. It’s up to me: my sales cycle was only extended because I was too slow to invoice. Knowing that, I can make a note to always invoice this client well in advance of the 4th.

Let’s say I have another client who pays within six weeks instead of the usual 30 days, and another client who will pay me by the end of the week if I send the invoice now. Now that I have gathered this information, I can plan my cashflow calendar.

Knowing your sales cycle also means you will be able to account for traditionally quieter periods. In my business, summer is generally quiet, which gave me an awful shock my first two years in business: I was wondering what was wrong and how I was possibly going to make it through.

Now I know I have to plan several months in advance. I can then work backwards through my sales cycle: if I want money to come into my account in August, this means I have to invoice clients between June and July, which means I have to deliver my services between March and June, which means I have to make the sale between January and April, which means I have to send a proposal the year before, etc, etc.

Look at your proposals outstanding

When you send a proposal to a prospective client, record the date in a spreadsheet. Then you will know which proposals are outstanding, and which are sent out and due to come in. This will also give you information about your conversion rate: say for example, out of ten proposals you send out, six are accepted, then you know that you need to send twenty if you want to get twelve clients.

Finally, look at expected sales: how much you’re expecting to have, by when

This is a function of your existing pipeline of business contracted, your proposals outstanding, you conversion ratio and your expectations of additional sales in the period of time under review.

Second quadrant: money going out

Obviously, you should expect to have costs. When I get a bill in my email, I will mark it unread and put it in a special folder until it’s paid. In the beginning of my business I would remember to factor in costs like business lunches, taking taxis or a train and paying for sundry business items.

But I made the mistake of forgetting about standing orders: monthly fees for certain business resources. It might be office rent, or a recurring service fee, for example, and you might not be planning specifically for them to be paid.

The reason that these costs are easy to forget is because when they’re automatically taken out of your account, you don’t have to manually process them. Out of sight and out of mind – these nasty “surprises” then can land you in hot water when cashflow is tight.

One outgoing you should always factor in is your salary. Many business owners tend to pay themselves last. But don’t forget it and build it in. Because if you can’t pay yourself, you don’t have a business, you have an expensive hobby.

Third quadrant: your bank balance

As soon as you have the fundamental information collated for your cashflow projections, start off with your opening balance, then deduct your expenses and reference them with the date. This is the key principle, as dates will give you the actual flow.

Once you can see how your expenses are due over the month, you know when you need to have the corresponding amount on your account.

If you have €10,000 coming in two weeks, but you find that you have a €20,000 expense due today and your credit terms are already overextended, this is not a good place to be at all… And this is very often completely preventable with the principles outlined here.

Fourth quadrant: educate yourself out of cashflow predicaments

Experience is the mother of wisdom, and experience is the name we give our mistakes. But nobody said your wisdom necessarily had to come from your own mistakes. Save yourself the trouble and the stress, and learn from others.

In my book The Savvy Woman’s Guide to Financial Freedom, I outline a scenario in which two business owners interact with their bank manager in very different ways:

Rebecca has regular contacts with her bank manager, with whom she is on first-name terms. She makes sure to regularly “touch base” with her manager, even (especially!) when times are good. When the time comes to ask for a loan to grow her business, Rebecca finds that her bank manager is very supportive.

Bridget has never met her bank manager, because she never needed to ask for anything. So their very first meeting is the one where Bridget asks for a loan. The bank manager doesn’t know her, didn’t even know she had an account with them until that morning.

Who do you think will get the loan more easily, and with it the money that will smooth out cashflow concerns?

This lesson was reiterated when a reader contacted me to say that my book had made her realize she was in Bridget’s position: all was fine in her business, but if the day came when she was to ask for €20,000, her bank wouldn’t know her.

This “mistake” never happened thanks to this reader actively educating herself and consuming relevant information. She realized she had to develop a strategy in case she ever needed a line of credit.

So where can you get advice on business finance and cashflow? You can start with putting the steps of this blog post into action. You could also contact your local County Enterprise Board and see if they have any relevant events or documents. A more experienced business person can act as your mentor for a while and show you the pitfalls and how to avoid them. And of course a working relationship with your bank is always a good thing.

Simply researching your options and simulating scenarios is a great start. You might realise that, if push came to shove, you could charge some expenses to the credit card. It’s not ideal, but it still leaves you, say, 56 days of breathing room. That kind of knowledge, if you use it well, is what will help you navigate through tighter times.

Perhaps this exercise highlights that you will need short term credit in November – then now is the time to speak to investigate a line of credit so that you’re prepared and avoid the anxiety.

On the other hand, you may find that you will have extra money in a couple of months time – then you have the luxury of considering if you need to make some capital expenditure, can afford to take on some extra staff or simply invest in the bond or stock market.


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