Why your social enterprise needs a cash flow forecast
If you’ve skipped the process of creating a cash flow forecast for your social enterprise, you’re not alone.
We know this, because at Inspire2Enterprise, we’ve helped a huge number of ambitious social entrepreneurs who simply haven’t thought about this kind of detail.
This is understandable, because a social enterprise is an exciting, passionate business venture, and it’s easy to get lost in the social purpose.
The problem arises when you overlook vital business elements like cash flow; without a forecast you’ll be heading downstream without a paddle.
Here’s a few reasons why your social enterprise won’t survive without a cash flow forecast.
It’ll identify potential shortfalls in cash – before its too late
A business bank balance can dwindle under your nose and, before it’s too late, reach a point where you can no longer pay staff or your suppliers.
With a cash flow forecast, you’ll be able to identify any potential cash shortfalls in advance. It’s a bit like a hurricane early warning system, and one which will prevent any nasty surprises.
It’ll protect employee and supplier payments
Beyond your rent and bills, if there’s two things you need to be able to pay each month, it’s your employees and suppliers.
Employees need paying, obviously, but if you’re late paying suppliers or let them down entirely, they’ll stop supplying.
It puts you in a business mindset
Social enterprises enable society to profit, but they can only do that if they make a profit themselves.
Despite this, it’s not uncommon for social entrepreneurs to find the business element of their organisation a bit unpalatable, or even inappropriate. If this sounds familiar, by working on a cash flow forecast, you’ll put yourself in a business mindset without even thinking about it.
You’ll quickly realise that the enterprise can only be sustainable if it continues to generate and maintain an adequate cash balance. It doesn’t get any more black and white than this.
You’ll need to produce if when seeking funding
There are very few investors, banks and grant funders who won’t want to look at some form of cash flow forecast when approached by social enterprises.
The reason is simple; they need to be sure that their money isn’t going to be squandered and that it’s being placed into an operation that’s savvy with its financial planning.
Most importantly, they’ll want to see that the future looks bright, and that you’re taking the cash side of your enterprise seriously.
Trust us – if you walk into an investor meeting with a carefully prepared cash flow forecast, you’ll stand a far better chance of gaining the funds you need.
Just like business plans, cash flow forecasts should be living documents; you don’t simply create it during the startup phase and then leave it to gather dust.
Your cash flow forecast should be revisited every month and amended to account for new expenditure and predicted income. Letting it go stale is just as bad as not having one at all!