How to Succeed in Business

Success in business depends on more than profits. It also depends on planning positive liquidity and cash flow which is ultimately what success depends on.

Getting a Business off the Ground

Success starts with offering goods or services people will want to buy at prices they are prepared to pay. What follows is how not to throw that success away.

Never Run Out of Cash

If the sum of monthly bank, cashflow and financial facilities are insufficient to pay the bills on time, even if it’s only for a month you run the risk of interruptions in the supply of goods and services. 

If that happens, forecasts profits, the balance sheet (solvency and liquidity) and cash itself can start to suffer. If you are short of that cash and undrawn financing for more than one month they can start to vanish.

None of that should happen though, as long as monthly bank, net cashflow and undrawn and available external financing are all adequately and credibly forecast and budgeted.

There's No Such Thing as the Best Price

When creating profit, cash-flows and solvency using Figurewizard, an early entry called for is the % margin of sales as gross profit

Everything that follows will depend on that number, so whatever the pressure on your prices you should try everything possible to maintain it. A 1% drop from your forecast gross profit margin can have consequences out of all proportion on the business plan.

That’s why, when forecasting using Figurewizard, a cautious gross profit margin of error is always recommended.

What-If Planning Cashflow

For example, if you go to the sample What-IF Calculator Planner, you will see that the gross profit margin applying to all of the sample forecasts is 41%. 

Reduce that to 40%. As you would expect profits and cash will instantly show they have been cut but more importantly, operating cash-flow goes from positive to negative, potentially a very serious matter.

Operating cashflow describes how well a company is equipped to service borrowings from its core operations. That’s why banks and other lenders attach so much importance to it. A forecast deficit would mean the business will be borrowing more than it can handle.

Action to Restore Operating Cashflow

Solving cashflow problems by borrowing yet more cash doesn't actually solve the problem, it simply kicks the can down the road. 

In the medium to long term, net operating revenue / profit has to be improved by cutting overheads and negotiating better deals from suppliers, while improving cash by cutting back on investment in fixed assets and especially the value of year-end stock.. In this case, more borrowings become a temporary expedient designed simply to give you sufficient time to achieve those objectives.

Planning and Forecasting with Figurewizard

All of this can be planned and forecast using Figurewizard. All that takes are your projected figures for sales, gross margin, overheads, fixed asset purchases and sales, financing and four simple ratios.

VAT and corporation tax are automatically calculated and applied to the forecasts by the system. Getting these forecasts right can transform your business.

FAQs
Lockdown Recovery: Forecasting Profits, Cash and Finance. How to Apply for Business Interruption Scheme with Figurewizard How to calculate liquidity and short-term liquidity How to calculate markup and margin The Truth about Monarch Airlines Labour's Spending over 10 years from 2000 How to make profits and not run out of cash Credit Checking - How to Read Micro or Short Form Accounts Amortisation of Arrangement Fees for Long Term Loans BHS Profits Performance 2010 - 2014 BHS profits, liquidity and cash flows 2009 - 2014 How to Calculate a Free Cash Flow Forecast Campari: How to apply for a bank business loan What are Current Liabilities What are Current Assets Late Payers and Cash Flow What is Operating Cash Flow What is Working Capital How to Read a Balance Sheet Business Planning Cash Flow Calculator Short Term Liquidity Business Liquidity Corporation Tax is not Calculated on Net Profit Small Business Corporation Tax Cash Flow Calculator Using Figurewizard - VAT Using Figurewizard - Sales by Month Using Figurewizard - HP or Instalment Plan Budgets Using Figurewizard - How the budgeted cash flow forecast is calculated Using Figurewizard - Fixed Asset Budgets Using Figurewizard - Calculate Purchase of Goods Using Figurewizard - Forecasting Payments to Suppliers Using Figurewizard - How to Forecast Cash Collection Solvency and the Balance Sheet Property in the Balance Sheet Why Equity is a Liability Asset Management and Liquidity Selling Fixed Assets Contracts: Invitation to Treat What is Deferred Income Loss on the Sale of Fixed Assets Calculating Gross Profit Margin Profit and Loss Statement What is Operating Profit What is Net Operating Revenue What is Equity Profit on the Sale of Fixed Assets How Taxable Profit is Calculated What are Operating Overheads Overheads - Provisions How Depreciation is Calculated What is Business Operating Activity What are Fixed Assets Liquidity and Cash Flow Balance Sheet Liabilities and Leases Stock or Inventory Control What is Distressed Stock or Inventory What is Interest Suspense Account Product Safety Laws What is a Bill of Exchange What is Payment at Sight What is a Pro Forma Invoice What is a Bill of Lading What is a packing note What is Demurrage Cash Flow Forecasts and Planning Factoring: Invoice Discounting and Cash Flow How Does VAT Work Figurewizard as a Sales Aid for Factoring and Invoice Discounting