If the latest statistics from the Australian Securities and Investments Commission (ASIC) are any indication, the business start-up environment is alive and well in this country. In fact, more than 200,000 companies were incorporated in 2014 and the World Bank ‘Doing Business’ Study ranked Australia the fourth easiest place in the world to start a business.
Of course, satisfying the regulations is only part of the start-up process and a lot of planning is required before you actually flick the switch and establish your business structure, apply for a bank account, ABN and tax file number.
The process starts by identifying an opportunity and then developing a product or service that fits the gap in the market. It needs to be priced to capture a share of the market and the planning stage is a bit like a jig saw that you need to piece together. There are many moving pieces in the puzzle that need to be joined together when launching a start-up and one of those pieces is what we describe as your ‘cash clock’. This is the amount of time a business can survive (without a sale) before it runs out of cash. Having this information before starting your business is more important than many entrepreneurs think.
Your ‘cash clock’ is calculated by dividing the amount of cash in the bank by your current monthly spend. For example, if you have a bank balance of $20k and the current monthly expenses (staff, rent etc.) are $10k, then you have two months on the clock.
For start-ups, predicting and monitoring the financial performance of your business can seem a daunting task, however, knowing your numbers is crucial to the survival and ultimate success of your business. By starting with good financial habits you will know how to identify the warning signs. Early detection means you can then apply for finance before it becomes a crisis.
Here are three tips to help you understand and monitor your start-up’s cash clock:
Of course, satisfying the regulations is only part of the start-up process and a lot of planning is required before you actually flick the switch and establish your business structure, apply for a bank account, ABN and tax file number.
The process starts by identifying an opportunity and then developing a product or service that fits the gap in the market. It needs to be priced to capture a share of the market and the planning stage is a bit like a jig saw that you need to piece together. There are many moving pieces in the puzzle that need to be joined together when launching a start-up and one of those pieces is what we describe as your ‘cash clock’. This is the amount of time a business can survive (without a sale) before it runs out of cash. Having this information before starting your business is more important than many entrepreneurs think.
Your ‘cash clock’ is calculated by dividing the amount of cash in the bank by your current monthly spend. For example, if you have a bank balance of $20k and the current monthly expenses (staff, rent etc.) are $10k, then you have two months on the clock.
For start-ups, predicting and monitoring the financial performance of your business can seem a daunting task, however, knowing your numbers is crucial to the survival and ultimate success of your business. By starting with good financial habits you will know how to identify the warning signs. Early detection means you can then apply for finance before it becomes a crisis.
Here are three tips to help you understand and monitor your start-up’s cash clock:
- Create a budget. Detail your monthly expenditure starting with fixed costs like your rent. Measure your actual expenditure against the budgeted expenses and adjust your forward projection.
- Review your monthly profit/loss report. Compare the figures against your budget and identify the variances.
- Create a cash flow budget. Start with your opening bank balance then add inflows then deduct outflows to project your closing monthly bank balance. Remember to include unpaid liabilities such as credit cards and tax liabilities.
RSS Feed
