Part of your cash flow is really easy to project and that’s the expenses part.
Okay? Cash flow has really got three stages. You’ve got sales, cost of sales, expenses. I was helping a client with this the other day. He has started an e-commerce business and he is selling electric scooters online. He’s got some fixed costs that are always going to be there. Website fees, insurance, banking fees, et cetera. They’re the same things that happen every month, regardless what happens. They’re the easiest things to put in first. Put those in first.
Then you need to look at your cost of sales and your sales. If I sell an item for £10, and it cost me £5 to buy it, then I need to make sure that for every £10 I want to generate in sales, I put a £5 amount in the cost of sales, so that I’m reflecting the right costs and profits. But then there’s other complications, such as advertising. If you’re an e-commerce business, for example, and you’re selling an item for £40, you might spend £10 per item in advertising on Facebook and Google, so you need to take those moving costs, and make sure you’re basing your sales and cost of sales on the same figures.
You need to decide how many units you’re going to sell, and then you can work the cost of sales and the sales out, but then the other costs at the bottom, those fixed costs are what they are. The only time that really changes is if you take on staff members or new subscriptions, or something like that. Yeah, do you bottom bit first, the fixed bit. That’s nice and easy. The cost of sales and the sales, you need to take into account what actual costs are related to a sale. As I say, advertising, packaging, postage, and the cost of the item itself. If you can work that out, how much it costs to sell one mug, for example, by working out how much it costs to post that mug, how much average advertising spend you’re going to put behind the mug, and how much the mug costs itself, plus how much you can sell it for.
Work that out and then multiply it by the amount of mugs you’re going to sell, or aim to sell. That will then tell you if you’re going to be profitable or not, as far as the bank balance is concerned. I hope that helps. A bit complicated that one, but yeah, definitely worth having a chat with an expert, if you need more help with that.