With the cost of living and business costs soaring (particularly wages, petrol and food costs) it’s more vital than ever to have a handle on your business incomings and outgoings. We look at three key learnings for business success:
- How to forecast cashflow
- What to do if you’re operating at a loss
- Funding options if you’re in the red, if you’re starting-up or expanding.
How to forecast cashflow
We all know the saying, cash is king. Even if you are running a profitable business, if you don’t have enough cash flowing through your business to pay bills when they are due, this can be a problem! So staying on top of cashflow is essential.
Forecasting when money will come in and out will help you plan for the future. Being able to predict peaks and troughs helps you avoid financial difficulties. It’s also a vital business planning tool. Use cash flow forecasts to plan for expansion and growth without overstretching your resources.
A cash flow forecast starts with a prediction of income and outgoings, then adds them together to estimate how much money you will have in the future.
The business.govt.nz Cash Flow Forecaster Tool can help you spot any red flags that might affect your revenue and give you time to do something about it.
Want to do a Cashflow Forecast straight from Xero? Xero has a nifty Cashflow Forecast Template that you can use.
The funding explorer below can also be used to help identify ways to free up cash. Read on for more information.
What to do if you’re operating at a loss
If you’re spending more money than is coming into the business then you’re operating at a loss. This may happen temporarily when your business is starting out, or in periods of growth. It’s okay if you’ve got enough in the bank to cover the costs of running your business until your income picks up.
But if your business is frequently operating at a loss because of slow sales or soaring costs, you’ll need to make some changes to how your business is running.
What to do in this situation:
- Reduce your expenses.
- Is there anything you can cut from your spending?
- Can you reduce the amount of drawings you’re taking from the business?
- Try to negotiate better deals from your suppliers or switch suppliers.
- Sell assets you’re no longer using.
- Increase your sales.
- Can you charge more for your product or service?
- How can you sell more of your product or service or get more customers? You may need to look at increasing spend on marketing.
- Get advice — an advisor may be able to help you turn your situation around.
Advice from an accountant or business advisor (get in touch with us) can help you get your business back on track and avoid trouble ahead.
You can also talk to us about claiming losses at tax time or carrying losses forward.
What funding options are available?
Are you a start-up needing funds to get going? Are you wanting to buy an existing business or franchise? Or do you have an existing business that you want to expand? Or do you need funds to help with day-to-do business costs?
There are three main ways to fund your business:
- Use your own money, also known as bootstrapping.
- Borrow, eg loans from a bank.
- Seek investment in return for a stake in the business, also known as equity capital. This includes crowdfunding and investors.
Depending on your business type or situation, you may also be able to access grants from the government or other organisations.
Use the business.govt.nz Funding Explorer to check out the right options for your situation. The explorer will show you specific options with the relative cost, risk and effort involved in each type of funding option.
Contact us if you’d like to discuss your business costs, revenue, cashflow or funding streams.
Source: some of the content above is sourced from business.govt.nz.
