CASH FLOW FORECASTING
I
Learning how to build a crystal ball
recently attended a workshop for
entrepreneurs on strategy and the
facilitator asked us whether we are
self-employed (meaning that we still function as an employees, the only difference
is that we are working for ourselves and
not for a boss) or are we entrepreneurs. In
his definition of an entrepreneur, he said
an entrepreneur is one that is able to predict future trends so as to position his
business to take advantage of.
are entrepreneurs – we don’t have time for
numbers, that’s the bean counters job.
As I sat in that room, I looked around at
the rest of my fellow workshop attendees
and reflected – it was almost as if we had
been grappling in the dark and someone
just walked in and switched on the light.
All of a sudden we were hit with a reality
that, we left our high flying jobs only to
become employees again – only this time
to ourselves.
So what is the problem? Our current cash
flow forecast is based on the current set of
reality and we presume (as employees
normally do) that things will remain as
they are and our business (or more correctly defined – our glorified place of employment) will continue to thrive.
“the only difference is
that you are working for
yourself and not for a
boss”
To a large degree, this perhaps explains
why we manage our businesses the way
we do – we are still wired with an employee mentality. An employee is only concerned about doing what he/she needs to
do so that they can get paid at the end of
the month. So in the same way, we do
what we have to do to generate enough
revenue to meet the business expenses
and hope to make some profit in the process – but in most cases, what we refer to
as profit, is merely the salary that the
business should pay us anyway.
But therein lies the risk, because of our
employee tendencies that we have brought
into our new role (the business owner), we
rarely take time to look ahead and foresee
or predict future trends.
As advised by the experts, we therefore do
our annual cash budget and 2 year cash
flow forecasts…ahhhmmm, actually we abdicate this role to that accountant guy who
seems to know what he is doing and we
rarely question the output – after all, we
“things change at the
speed of light and generally employees are the
last to catch on to the
veracity that things have
gone south. ”
The reality however is that in today’s business environment, things change at the
speed of light and generally employees are
the last to catch on to the fact that things
have gone south. How else do you explain
mining unions demanding a double digit
wage increase in the middle of a commodity crisis and how else do you explain that
corporate financial planners (in the same
mining companies) with MBA degrees and
6 zeros in their annual packages failed to
predict China’s economic slowdown – it is
just not in the nature of an employee connect the dots of future trends. It is hard to
see what challenges lie ahead when you
are working IN the business.
Entrepreneurs on the other hand
understand that it is absolutely pivotal to
see what coming ahead. They endeavour
to spend most of their time to work ON
their business rather than IN their business.