The #1 Cause of School Failure? Lack of Good Cash Flow Management

When sorting through your business to-do’s, we have a feeling that cash flow management isn’t on the top of your list…but it should be.

Not convinced? We’ll let the numbers do the talking. According to research done by U.S. Bank and cited by SCORE Counselors to America’s Small Business, over 80% of small businesses that fail do so due to owners’ inability to forecast and manage cash flow. 

As a teacher of the martial arts, forecasting your cash flow probably doesn’t sound like the most exciting topic, but it’s a no-brainer. We hate to be the bearers of bad news, but running out of cash will put an end to your teaching days. On that note, let’s make sure you are prepared.

 

1.) PREDICTING CASH FLOW

While every school owner knows whether or not they are profitable, this knowledge unfortunately won’t give you a clear picture of your cash flow. You can’t make good business decisions today without knowing what your cash position will look like in a few months.

You don’t need a strong financial background to do a cash flow forecast. In its simplest form, a cash flow forecast is simply a calculation of the monies you expect to bring in and the expenses you expect to pay over a period of time. Ideally, you should be forecasting a minimum of 6 months out. Still lost? Here’s the formula:

 

Beginning Cash + Projected Income – Projected Expenses = Ending Cash

 

If you don’t have much financial experience, a simple spreadsheet may be a more straightforward approach. Click here for a free Microsoft Office Excel template for projecting small business cash flow!

 

 

As you do your cash flow projections, resist the temptation to spend on “wants” during months you have excess cash. Instead, focus on “needs.” How do you accomplish this? Simple – set a little money aside each month in a separate bank account. This is your reserve account, only to be used to handle unexpected emergencies (ahem, COVID-19). Most experts recommend a minimum of 3 months of expenses be set aside in reserve.

 

2.) IMPLEMENTING TOOLS TO ASSIST YOU

What if you’ve done your cash flow management forecast and things aren’t looking good? Don’t worry, there is still a light at the end of the tunnel. Let’s take a look at what you can do to brighten up that projection: