Himalaya: Listen. Learn. Grow.
Business Built Freedom
Cash Flow Forecasting With Louise Delaney
Josh: G’day everyone out there in podcast land. There is a gap in many businesses ad that's cash flow forecasting. It's too expensive not to have good cash flow. So I've got a special guest here, I've got Louise from Cash Flows For You. And she's going to talk to us about how you can better your cash flow and make sure you keep good records of that and make sure you know where you're going, especially at a time like now. So, Louise, tell me about your pain story and how you learnt those need in the industry to start cash flows for you.
Learn more about cash flow at dorksdelivered.com.au
Louise: Oh, hi, Josh. Thanks very much. Good question to start off. So actually, the pain that I felt was personal running my first business, which was a law firm, and I'm not a lawyer, I'm a business owner, and my business partner was a lawyer. And there was a massive disconnect between the work coming in and delivery and when we were going to get paid, and then the bills and how I was going to pay wages and practice subscriptions and all these things. And so the stress was real, and I wasn't sleeping and I went to bookkeepers and accountants, you know, who are very focused on the backwards view and doing the right thing with the general ledger. And I couldn't get the forward view that I needed, or the control of my cash that I needed. So I did some research and started it myself. And I swear by the 13 week rolling cash flow, which was originally a Keith Cunningham design, and is now a hybrid Louise Delaney design.
Josh: I know myself, you see people and you hear all these different ways that people try to combat cash flow. And even in a home sense, you got, okay, let's have one bank account for holidays, another bank account for personal fun stuff, and you might spend 50 bucks a week on yourself and then spend $100 a week on your holiday or whatever the breakdown happens to be, then all of a sudden, you get this crazy bill and you ah man wasn't expecting the car engine to blow up, the insurance to come through the whatever that happens to be. And I guess having good cash flow practice and good cash flow hygiene is all about understanding where that's going and where you're actually sitting. So you're normalising your understanding of how much money is actually coming in and going out. Would that be fair to say?
Louise: Yeah, definitely. And it look at the measuring business that most of us don't have when we start a business. You know, we measure our marketing, we measure our sales, but we never measure our cash. It's like anything. If you've got visibility of it, you know, you can stop stressing about it. It’s not running around in your head, you're not guessing. So when those unexpected bills come in, you're like, ah, didn't really plan for that. But that's okay. Because I know what my cash is doing. And I know how to manage that.
Josh: Yeah. And when you have that data, you can then make decisions, you can make decisions without the data. And I see just from an IT perspective when we go into businesses, the amount of waste that people have. They'll be spending something because they've been spending something and there'll be things with it, they might be on a phone plan for their business where they're spending $1200 or $1500 dollars a month, we went in, and at this stage, we hadn't started doing this as many, many years ago, I saw the bill sitting there on the table and because I'm your eyes wander, don't they? And then I had a bit of a look. And I said is that what you're paying? And they said, Yeah. I said, oh my goodness. Why? I’m like what is it doing? It has this working and I had a look and I said I said I'm sure we could do it better price for you than that. And I looked through and $200 a month is what it got down. And I guess always doing something the same way doesn't mean that it's always the right way to be doing that. And always just paying the bills as they come in, you have this haphazard approach, you're always trying to think, okay, on my net terms, right with the clients that I'm working with, or some bigger firms, like you'll have like three months before you get paid off, you do your work.
Louise: Yeah. And if you can see it, you can alter it. So if you've got low sales, you'd have a look down and go, where can I save some money here? And that makes you focus on those bills that you've always paid at the same rate and never question. So it definitely gives you eyes on the numbers without thinking about it from a spreadsheet point of view. It's more of a personal connection with how am I going to pay these bills? And where can I save some money just so you can get to keep more cash. So it definitely holds you accountable for where you're spending your money. It also highlights if you need to increase your sales to keep paying a $400 Telstra bill or is there a better way to do it. So it helps you to push towards making decisions, to get smarter with your cash.
Josh: As I said, in times like now, businesses, I'd say some are in a holding pattern, some are nosediving, some are skyrocketing, some, they're all over the place. It doesn't really matter what part you're in, if you're going up, down, left, left or right. If you don't have good cash flow, if you don't know where your numbers are, you don't know where your expenses are going, you can very quickly go backwards. That's something I've noticed with business owners that are bringing in $400,000, $450,000 profit to themselves a year. So they've got businesses with 40 to 60 employees, and they're bringing in a reasonable amount of money. But they're also spending a reasonable amount of money. I kind of put the analogy, like you've got your hands and you can't see this on the podcast you put your hands out. And if you grab it like it's raining money, some people hold them ready to hold that money, just in case there is a drought coming, other people hold them and the money just flows through their hands. And then when that drought comes in, they starved.
Louise: Yeah, you asked at the start was this and what was my pain, the other pain point was my business coach, and my accountant was saying, oh, look at this profit, look at this profit. And I was like, have you seen my bank account? Like, where is this profit, we can't spend profit, you know, it's a cash that's going to be, once you've got that foundation that's going to allow you to get to profit, if it's slipping through your fingers, as you just said, then you're on that rodent wheel, and you're never going to get past it to actually make clear profit. And so your foundations of your business grow. So you can make those decisions, and look, you know, whether you're going up in your business, or just trying to stay alive, you know, getting some control over even if it's a tiny little bit of money coming in.
In fact, that's even better. That's what happened with COVID, people stopped, you know, a lot of people didn't earn as much or didn't get as much cash coming into their business, but they also dropped all their expenses. So you know, it's managing what's coming in, and what's going out, and making sure you're setting clear goals for that money that you're going to keep in the business. Because if you haven't got a buffer, you know, or a goal, you know, like it might be to start a craft beer brewing company [hypothetically], just saying, maybe, want to have you know that on your goal is so you know why you're trying to retain cash in your business for the foundation for the next growth period. Or even if it's to get out of your business, to be able to present somebody with solid cash flow forecasting, then it's a great exit strategy as well.
Josh: I can resonate well with the craft brew story there for some reason. I know when I started out in business, what I did is I had about $1,000. I’m like okay, let's see what happens. I have $1,000 and at this stage, it was the side hustle working for Education Queensland. And so let's see what happens, where does this go. Put $1,000 in and pulled out $1500 and I said okay, cool, cool, cool. I'll take my $1000 back, use that $500 and make that $1000 and then that $1000 turn to $2000. Then before I knew it, I was working with Education Queensland and bringing in $4,000 a month doing this side hustle, as it's known, this side hustle. And then then it started just creeping up from there and up from there and I went okay, this is becoming pretty real. I thought what would it take for me to jump and this is what a lot of people, if they want to keep their security net of their own job, what would I need to jump? And some people go I just need 12 weeks and all we had to set up a million dollar business. You know, good luck. Don't do that. Get to a couple of conferences and talks to some business owners and some mature business owners first, but I had the business running as a side gig for three years and I'd saved up enough for all of the expenses for six months, even though the business was sitting on a recurring basis bringing in money. So I had a positive reoccurring income and then I still had six months of expenses, just in case all of that disappeared, and that was my safety net.
Louise: Well, why did you have that insight so early in business?
Josh: That's a good question. I don't know. I started my first business, wasn't the IT business, I started another business which is all around it's really boring, but making numberplate brackets, which was just a lighting loom and fixtures on number plates. And when I made those, the process wasn't very automated, ended up automating the process and seeing that I needed to have some money kept aside to be able to buy parts and whatnot. So I guess there's an element of that where I had all the responsibility for myself there. But I read every book that I could get from the government on GST and starting a business beforehand. So I did it the cheapest way possible in reading the literature that I could get for free. And then I just sort of had a look and thought, what would it take for me to make the decision? If it wasn't going wee? If something went belly up, how long would it take for me to get another job? Where is my risk level? And would I be comfortable in losing a certain amount of money? I’m like okay, at that stage was 60 grand.
I went if I lost 60 grand, how annoyed would I be? And my whole thought was, I've learnt the whole way along the journey. Although I would lose that money technically, it was money that I've only earned through the process and setting it all up. As anyone knows it's been in business for a while, that's a seasoned business owner, the passion you get in for business is a lot of times sideline from the other things that you need to be doing in business to keep the business running. And I'd learned all these other different things. So, okay, well, I've still learned a lot. And if I had to go to university to learn that, I probably would have spent the same amount of money. So that was kind of like the sort of thought process that I went through and I thought in case something goes really wrong, I could still go get another job. But if I couldn't get a job for six months, because there's a global pandemic or something, something really terrible…
Louise: You thought that I'm sure.
Josh: No, that wasn't, that wasn't on my radar at all.
Louise: You’re still very strategic, you know that, I mean, that's a strategic approach to business and managing your risk. So that's pretty impressive. A lot of us business owners, when we go into business, we might do the number crunching to get started. But then we stopped looking at it going forward. And you know, and in fact we’re fearful of looking at it, or we think that this is as good as it gets. So with that strategy that you used to start the business, it would be brilliant if every business owner could take a few weeks off, maybe go to Thailand or Bali every year, or maybe just Queensland, and do that same strategy planning again, and base it around your foundations for building your business, in particular for this conversation, your cash, you know, what's my break even.
Like, when COVID hit the first thing that my clients did was look at their numbers and go right to how long can we last? When do we have to start laying off people? You know, when do we drop out office space or ask for a reduction on our rent? You know, this was all before the government stepped in with Jobkeeper and things like that. But having that business plan and strategy, continually, as a business owner for working on business skills, on business tasks, it’s going to be, you know, the best roadmap through business, rather than just hoping to God it's all going to work okay, because then when COVID hits and you go or anything, you know, your key employee leaves, the price of something goes up, you know, you can look at your numbers and go, all right, well, that's only going to affect me for this time, I need to pedal harder and get more sales, and make sure that I maintain, you know, the momentum in my business, or even when to drop staff so that you can go back to just being you running the business, you know, because they were decisions we all had to look at when COVID hit.
Josh: Over the years, even though I've done some planning, I over planned probably of anything, more planning the execution. But if anything, what I've noticed over the years is every business has these problems. And I had a vertical that I was working with, that was working really, really well. And we thought this is fantastic. They were growing very, very quickly. And so we went and invested a whole bunch of money in new infrastructure and data centers in Melbourne and Brisbane. And then a month after doing that, having $80,000 worth of cash that just outlaid towards this infrastructure that was going to allow us to sort of 10 times our business growth, the whole thing came tumbling down. And I was like, oh, that nearly killed us. And then I've had the key employee disappear as well, definitely this silver lining now, but at the time, the breakup of business partners and things like that, which doesn't help, shit happens as it would be, it’s good to be prepared as best you can. But having that rainy day like for me, my risk threshold was six months. But what I learned was interest compounds interest, other people are going to smile or frown depending on what position or business they're in. But when you've got $60,000 sitting in your bank, and you're running a positive business, every day that that still happens, you've still got more money coming about, admitedly not much at the moment with the RBA rates, but it's something.
Louise: Yeah. But it's also emotional interest. You know, like, if you've got 100 bucks in your wallet, or 20 bucks or 500 bucks, you certainly feel a lot wealthier than if you've just got a card. [Absolutely.] I find when you start doing your cash planning is like saving in the piggy bank, once you start seeing, you know, your cash balance going up, you know, and I do mine on a spreadsheet or a dashboard. Once you start seeing that cash line go up, you get more efficient at how you use your cash, because you know it's not yours. It's the business and it's whether you want to stay in business for a long time or a short time or hit a peak. You get a bit greedy with your cash. But when you make decisions, you make them without the emotion attached to it. It's the numbers that are really blindingly obvious that are pushing you towards that decision.
Josh: Everyone has that feeling of dopamine release when they go oh I just bought something cool. But when you buy something on the credit card you have that and when you buy that out of your own cash, you have the same feeling. But a week later, or 55 days later, after the interest free period, you think, oh crap, then then you dive down. And once you become cashflow positive, there's a stress that’s lifted off your shoulders.
Louise: Totally, like I don't even run my law firm now with a credit card, you know, and it took me about five years, I always had probably 10 grand on that credit card. And not in the interest, I still paid it off bits and pieces, but I would have paid interest to the bank for having that. And that was, I didn't even need it, I used it because I was scared to use the cash in my business in case I didn't plan for bill properly, or there was, you know, extra taxes that you hadn't planned for.
So now I run that without a credit card. And I do have a credit card in my personal life but same principle. As soon as I use it. It's awesome to go and do the transfer to pay it off again. [Yep] you know. And it hasn't always been that way. I've been burned for sure using a credit card. But it's also nice when one of the benefits of cash flow planning is if you've got a 12-month subscription for something, you can pay it monthly or weekly or six monthly. And it's better for cash flow to do that. But psychologically, it's amazing to be able to go, I've got enough cash just to pay for that. And I'll take the 10% or 15% discount, you're going to give me for that.
Josh: I completely agree. All these discounts are out there ready to go and get them and on the credit card on interest. So I have a credit card and I pay it out each month. I'm like, woo hoo, I had a look, it was early this morning that my credit card issued. And it sounds like I'm making this up. But it's legit the truth. I had a look. And it was $18,000 on the credit card. I thought okay, that's, that's alright, because most of the business expenses go through it, and then just get paid off at the end of the month. And it said, if you make the minimum payments, this will take 98 years to pay off and there'll be $780,000 worth of interest. I was like, what the hell? I was like, why? My goodness, and that is straight up interest, compound interest. I’m only using the credit card now for purely stupid rewards points.
Louise: Now, I need to talk to you about that. This rewards plan, I have another client that is very difficult to do cash flow forecasting for because everything goes on the credit card. But she did it too, because of the Qantas points and all the rest of it. Well, I say maybe that should be revisited now. Just change the payment cycle. You'd almost say, well, you don't pay interest anyway. But a lot of people do, the money that you would save in interest just to get the points, you could just you know, you could probably buy Virgin at the moment, I believe.
Josh: That's right. Oh, definitely, if you aren't paying your credit card debt, get rid of the credit card as soon as you can. I don't know why, I'm still feeling stupid having it. It's annoying actually, because it's one extra thing, it doesn't sound like much one extra line to reconcile for the bookkeeper. One extra thing to keep in your wallet, it’s just one extra thing to get hacked. It's just one extra thing. It's just annoying. You might know more so than me, international fees. When you have these international fees, and you buy something overseas. So I've actually got two credit cards, I’ve actually got two credit cards, I got one for overseas purchases, that has no international fees. And looking at when I move that across it I have saved a couple thousand dollars for any of the software products we are buying overseas. I don't know how that company stays around but I'm okay with that it’s only a very low value credit card. So it's like $3,000 a month or something like that. With the primary credit card for the business, everyone's going to know my whole setup now.
Louise: This is a like a truth serum podcast.
Josh: It is, isn’t it? Hi, my name is Josh. And I've got two credit cards. The bigger business one, the International transaction fees, they're ridiculous. You know, if you get those on, if you're not using a credit card, if you're using a normal bank account with a Visa Debit, or something like that attached, do you know if that's just probably more of a banker question?
Louise: But my background is banking, but it's been a while and transaction processing actually. And I don't know the answer to that. But I do know that in my bank account, if someone is paying me from overseas, I get charged the international fee. And if I have to refund somebody to an overseas bank account, I get charged the international fee. So I imagine that it's just their processing fee.
Josh: Okay. That was definitely adding up on that credit card, which is why I got the second credit card.
Louise: I don’t know the way around that is, but now's the time to approach the bank and find out what the way around that is because, you know, as the consumer, it's in our hand to be questioning this.
Josh: Yeah, absolutely. There's definitely interest to be saved across the board. That's something else, I guess with cash flow management, looking into things if you do have overdraft facilities or if you do have different things such as loans, whether they be equipment finance loans, or even your home loans and things like that. Some of the rate variance is huge. I had a look at for us again, I'm getting probably back to the personal loan stuff now, but I look and changing from one of the Big Fours across to one of the others that are just online only type lender, without bringing up names or anything, I was going to be saving $10,000 a year in interest. [Really] On a home loan, I was like that is pretty substantial. I was like that's a huge amount. And my current home loans are in the, like, mid low threes. And but with the big four verse. One of the online only is which were low twos. Yeah, both variable. So they're both comparing apples with apples, both with offsets, but with everything else. We’re probably slipping away from cash flow stuff now.
Louise: Well, it's making you look at it, though, isn't it? [Absolutely] Maybe cash is going because we could all use an extra 10k?
Josh: That's right. I looked at my bloody hell that's like, not that I'm going out to dinner every week for 10k a year. That's nearly thousand dollars a month.
Louise: Or you will own your home earlier.
Josh: Absolutely, that's right.
Louise: If you want your investment property for negative gearing they used to call it or tax reductions, then you go to one of the Big Fours. But if you want to get your personal residential property paid off quicker, go to one of the old shop around and find a better rate.
Josh: Yeah, that's right. Absolutely. I think you've definitely given a few tips here that are really awesome to do with cash flow, making sure that he's keeping on top of it being positive, where you can. Spending time to be able to have that cash flow. Even if it might take a few years to build up to a comfortable spot for you, can do it with a beer in hand traveling around Queensland possibly until the borders open up and then come to a spot where you go, okay, in a few years, I can now start buying things saving 10%, 15%, 20%, even 30% on some of the software out there, if you're buying it per year, and I know us we offer a pretty substantial discount on IT services if paid yearly, definitely worth thinking about. So if there was to be one book that you suggest anyone to read, what would be that book that would that influenced you or that should influence them?
Louise: Oh, aren't you writing a new book, Josh?
Josh: I am writing a new book on lemons.
Louise: On a serious note, I love the Keith Cunningham books. They're brilliant. And you said one book, but I am going to over extend that and say Barefoot Investor, Profit First from Mike McCalla, who has just written Fix This Next which I'm just reading at the moment. And really the foundation for me for getting your head around cash flow management when you don't have an accounting degree or your not a bookkeeper.
Josh: I can vouch for profit first and barefoot investor both fantastic books. Before we head off, is there anything else you'd like to ask all leave our audience with?
Louise: I guess the key really in the cash flow management and the motivation to keep doing it weekly, is to get clear on your goals, actually know the dollar value of your goal. It doesn't matter what it is, if it's 200 bucks, or another business of 2 million, whatever it is, get clear on your goal and then reverse engineer how you're going to get to that goal. So whether it's more sales, less expenses, double everything you're doing to get there quicker, until you know what your goal is or your comfort zone, your goal may be to reduce your risk. You know, if the industry changed that you're in and you got wiped out, or the industry got wiped out, you know, your goal might be to keep going for six months until you can change your direction of your business or get another job or whatever it might be. So that's probably the way I would get started with my cash flow and just get started. You know, until you start writing it down on a bit of paper or on a spreadsheet, just get started. And you know, really quickly you'll get excited about the results. And if they're not exciting results, at least you know about them and you can do something.
Josh: And if you haven't liked your results, jump over to cashflowforyou.com and jump across the book a discovery call Louise will be more than happy to go through what she can do to help you out and make sure that the results make sense and that you do have achievable results with micro milestones. One of the things I love saying is if you aim for nothing, you'll be sure to hit it. So make sure you've got some goals in place. It's very important.
Louise: Brilliant. Brilliant. Thanks Josh.
Josh: No worries if anyone out there has enjoyed this episode, make sure to jump across to iTunes, leave us a review give us some love. And as I said go to cashflowsforyou.com if you're looking to hear a bit more information about how you can better your cash flow better position become positive, and not just in your money but in your emotion as well. So everyone out there stay healthy and stay good.