Do you create a cashflow projection whenever you want to start a business? I didn’t used to and it cost me so much. These days I do. Read on and see how one can actually save you avoidable trouble.
The first time I ever really sat down to create a cashflow projection for a business was when I wanted to apply for investment funds for the expansion of Triumph. Triumph is a monthly magazine I began to publish in 2006/2007. It is no longer in circulation but I learnt a great deal publishing that magazine. We stopped only at the 3rd edition.
Well, I wanted to expand and decided to create a 36 month “financial projection”. I did it on Microsoft Word and made use of a calculator a lot in the process (wish I knew better).
That was the last time I did a cashflow projection for a business. Every other business I ventured into was always backed with wishful thinking. Many times, I would discover after things have gone really far that the venture is not worth it. Or that I made fundamental mistakes that a cashflow projection would have saved me from.
Well after many years, I met a friend, Alex Lawal. Alex is a genius in many things (if you are reading this Alex, don’t let your head swell at all. I am only kidding my readers – so humble yourself…lol). Alex can code, create websites, has kick ass business insight and is almost always right in his predictions and opinions. Yet, this guy is so humble and does not speak unless he has to. I don’t know why some chic has not forced him to perform the “I do rites” yet!
Well whenever I tell Alex that I am going into or starting a business venture he would ask “what are the numbers saying?” That question is one of the best question anyone can ask you when you are starting a new business. That question will then force us to open Microsoft Excel and get working. These projections would then end up helping us in manay ways.
What a cashflow projection will help you achieve
1. It tries the workability of your assumptions
2. It will help you to know – for sure – how much investment you NEED
3. It will show you your business – in figures!
4. It will tell you whether your business is a “go” or a “no go”
5. It will shed light on folly
It tries the workability of your assumptions
In business, you have to make a lot of assumptions. And those assumptions are always made in a cause-effect and action-reaction mode. A cashflow projection will help you to have all the assumptions written down and tried with numbers. Assumptions that do not directly affect the business are done away with while exagerations are questioned.
It will help you to know – for sure – how much investment you NEED
Every now and then, you meet an entrepreneur and ask them how much money they need to start a business venture. More often than not, he will give you a range, rather than been definite. Nothing spells preparedness to a prospective investor than the ability to be definite at all times. Telling an investor that you need $350,542 sounds more serious than saying you need between $300,000 and $400,000. A cashflow projection will do that for you. See this as a compulsory pregnancy test.
It will show you your business – in figures!
A cashflow projection will show you your business in ways you have never seen it before. It will help you to know what areas to adjust. It will also help you to know what expense you must fulfill and which one you can do away with. Knowing your business in numbers will boost dedication. It will help you to really get to like the venture the way you have not before. Someone said “figures don’t lie”. Someone else said “if you can’t measure it, you can’t grow it.”
It will tell you whether your business is a “go” or a “no go”
A mere feasibility study might not achieve this for you. In fact, your feasibily study is not complete without a cashflow projection. The cashflow projection is a beautiful way of carrying out your cost-benefit analysis. If it is a “go” your confidence is boosted and more energy will be available to push through challenges. If it is a “no go”, set your breath, energy and resources. Dump that business. I have learnt not to ever fall in love with a business that will obviously not work. My sister-in-law began to invest in a business last year. With encouragement from me, she sat down with an expert to create a cashflow projection in February 2016. The numbers said she should not go ahead but she was stubborn (one of the characteristics an entrepreneur must have – sometimes) and went ahead despite warnings. The cashflow projection played out on the field.
It will shed light on folly
Sometimes you can be foolish and not know. A well crafted cashflow projection will help to solve that problem. Your folly will just show before your eyes after or during the creation of the projection.
An excellently designed cashflow projection will atttract investment when shown to the right people. Isn’t lack of or inadequate business capital one of the reasons many entrepreneurs fail? So before your next venture, ensure that you have a cashflow projection. It could be 24, 36, or 48 months projection.
So that is it! A cashflow projection will save you a great deal of trouble. When next you are looking to do any business or even lend money to someone for business, ensure there is a cashflow projection handy.