There’s a saying in business:
Revenue is vanity,
Profit is sanity,
But cash is reality.
Lots of people run their businesses knowing roughly how much revenue and profit they’re making.
But when it comes to cash management, they’re lost.
Cash is the reality of what you can do in your business TODAY.
This is where monthly cash flow forecasting can help.
Not only will this help to highlight any cash challenges before they become a problem – it will also help you to sleep easier and give you the confidence to make better business decisions around hiring new team members, or investing in additional marketing campaigns.
Here are 4 benefits of cash flow forecasting for your info-product business:
1. Confidently make decisions about ad campaigns
Not every ad campaign will generate a Return On Investment. And even ones that do rarely generate an ROI right away. It usually takes months to make your money back on an ad then turn a profit.
Above all else, you should know how quickly you need to make a certain ROI to keep a campaign going.
For example, if you spend $50,000 in month 1, and you’re expecting ROI by month 3, you must make sure you still have enough cash in the meantime to cover your fixed expenses.
A monthly cash flow forecast will allow you to plan and test different ROI scenarios.
2. Know if you can afford to hire
I wrote another article sharing 3 secrets to hiring your first full-time employee.
In short, exhaust other alternatives first.
But when you decide to hire, you must understand the impact that salary will have on your cash flow. Hiring somebody means a fixed amount coming out of your bank account each month. A cash flow forecast will help you see exactly how much you can afford to comfortably pay a new employee.
3. Understand how your renewals are doing
If your business is subscription based, your #1 goal is to continuously grow recurring revenue.
With a monthly cash flow forecast, you can keep an eye on your recurring revenue and churn.
Churn is when customers end their subscriptions. If churn creeps up without you realizing it, you can find yourself in a tough spot.
Tracking your recurring revenue and your churn is key to ensuring your cash flow remains positive and you’re building up your cash reserves.
And, it’ll alert you to any changes in your churn, so you can address them right away.
4. It encourages you to promote your products more
When you’re reviewing a cash flow forecast on a monthly basis, it becomes immediately clear which months you do well, and which you don’t.
By noticing trends and comparing good periods vs. slower periods, you can identify times when you need to work harder to grow sales.
Free cash flow forecasting template
If you want to get started with cash flow forecasting, use this free cash flow template on my website.
All you need to do is enter your sales figures into the first section and your costs into the second. The template will automatically calculate your sales and costs figures for you, to show your cash surplus or deficit.
If you need help managing your cash flow on a monthly basis and want specific, actionable help for making sure your business doesn’t end up cash flow negative, let’s chat.
Hope these ideas help. Until next time,
– Dan Steinhart, CPA
P.S. Did you know that your business consists of a few hidden leverage points that can unlock revenue growth?