Imagine you’re sailing a dinghy in high winds. It’s often about making fine adjustments to tiller and sail on a regular basis to take account of waves, changes in wind direction, gusts and perhaps navigation errors. You have to keep an eye on where you are trying to go, what progress you’re making, the angle of the boat and many other aspects, and adjusting your course and trim to keep you upright. If you’ve ever tried it, you’ll know that there is a fine line between making good progress to where you want to go and ending up capsized in the water.
In our article “What does 2022 hold for you?” we talked about the fact that the start of the year is a great time to be thinking about what your ambitions and your goals are going forwards, and how the landscape in which your business is now operating is so different from what it was before the COVID pandemic hit. We also talked about how important it is to write those goals down, and we gave you our Goal Setting worksheet as a start point to help you with that process.
So, assuming you now have a clear picture of what you want to achieve going forwards, where next?
Of course, the biggest challenge to all of us is to determine what money we need in order to make the business work, and given that we have new goals and ambitions, what money we will need to take those plans forwards. One thing is clear; any sort of advancement in the business requires funding, and depending upon how ambitious you are, the amount of funding needed expands, typically more quickly than you would expect. And initially, while you’re preparing for the launch of whatever you are building, you could succumb to a cash flow crisis.
In all of these cases it’s possible for the whole business model to unravel before your eyes.
Unless you have a viable financial model, or plan, in place.
That plan would identify what costs you will incur and when, and what the impact will be both positive and negative, on the financial position. With an effective plan you will be able to predict the financial impact of any changes you foresee both internal and external and deal with them before they become an issue. And provided you review that plan objectively (that’s really important!) on a regular basis, perhaps monthly, you should be able to recognise any new gotchas before they catch you out.
That plan will comprise two things:
The thing which makes the plan work is the ability to compare actuals against forecast figures, to explain the differences and to work out contingency actions to get you back on track if you haven’t achieved what you expected to, but equally to analyse any positive variances to make sure that they are solid and reliable, and to do that regularly. That will give you confidence to continue to proceed on your chosen path.
A bit like keeping that boat upright.
There are some brilliant guides issued by CICM to aid in understanding cash flow and what you might need to do to correct any inconsistencies, at https://www.cicm.com/resources/cashflow-guides/ . But in the meantime, if you need to talk through the issues you have, in confidence, why not give us a call