Wednesday, January 31, 2018

The Importance of Cash Flow Forecasts for the Business as Mission

Monitoring your cash flow and budget is the third most important activity of a faith venture entrepreneur. It falls right behind seeking God's direction for the business and marketing.

It's third, because you want to make sure your business is serving God's desires and not money while marketing is the lifeblood of any venture. But staying on top of your cash flow is in a close third place because it is an early warning indicator for the whole business, providing valuable time to solve potential future problems.

I've witnessed numerous practitioners err in this area by taking their eye off of this important indicator of how the venture is doing. In the business as mission start up community in developing nations, I have also frequently seen start-ups where the practitioner is not deploying basic accounting software so they are completely unaware of their venture's financial position except when it comes time to pay employees and bills.

Five years ago, during the start up of our custom cabinet business that employs ex-offenders, we made a mistake by growing too fast because of some positive publicity on a local news station and by also offering installation and finishing. We took a large amount of 50% down payments on jobs to help us buy the wood but then proceeded to anger customers with poor quality and installation work because we were attempting too many jobs at the same time. The situation quickly deteriorated with expenses far in excess of what we were billing for the jobs as well as our operation needing to refund some customers.

I had been closely monitoring our cash flow through this process but one day things went really bad and our cash flow projection showed us in danger of running out of money for payroll. I found myself praying for provision to overcome our mistakes as well as wisdom for the future. That day, a check arrived in the mail from an anonymous donor that covered our immediate money needs, allowing us to pay employees, satisfy our customers and change our business model. We stopped installing cabinets and started focusing on building just one line of unfinished shaker style cabinets. And we carefully managed our growth to ensure we could deliver a high-quality product ensuring the future success of our business. If we hadn't been monitoring our cash flow on a daily basis, we most likely would have missed our looming inability to pay our employees and been unable to proactively solve the problem.

Do you have a basic spreadsheet that helps your venture predict future income and expenses on a daily basis? It is not hard to create and can make a big difference in serving your business as mission goals. I'd be glad to share a simple spreadsheet to help.

No comments: