It’s not how much, it is just “how”.
How does good cashflow management provide solutions to problems before they arise?
Your business plan is alive and dynamic. The financial part of it is no different, it is evolving with you and is continuing to inform your decisions. Tim Berry, founder of Palo Alto Software, defines it thus:
“It’s not tax reporting, it’s an elaborate educated guess.”
In other words: the financial planning is part of your guide in making good decisions. Cashflow management is the key in tracking those decisions.
In building a financial section of a business plan, the financial forecast speaks to your market opportunity. It tells you if your market opportunity not just exists, but is it viable. If you are not making money then you do not have a sustainable business. Thus financial planning plays an important part in defining that market opportunity.
It also tells you what you need to be tracking in order to maintain your success. This is important in ensuring situations don’t get away from you. In business you are going to be dealing with uncertainties and unpredictable circumstances. Tracking the right things will help you anticipate those and prepare for them before they occur or cause damage.
Cashflow Management is not about minimizing what you spend.
Cashflow Management is not about maximizing what you earn.
It is about how you spend money. That’s right: even your cashflow management is not quantitative, it’s qualitative.
It does not matter how much money you make if you are not spending it wisely. It is an ongoing process to ensure you are allocating financial resources in the best way. Investing back in your business, investing in your employees, investing in the market.
Good scenario planning will help you identify uncertainties and unpredictables. You want to be as prepared as possible in business. This in essence a risk mitigation plan.
It also helps manage changing circumstances. Building a projection for the next 6-12 months, you can see the effects of changing variables along the way. When making financial decisions you want them to be well informed, and scenario planning and cashflow management will allow you to do that.
Long Term Value
Good financial planning also tells you how you are building value for the long term. Even if your current plan is to build a lifestyle business in which you want to work long-term, it is important to know that you are building something of value.