Is your cash flow strong enough to enable planned growth and reinvestment in your livery and/or riding school business?

When we first started and for a fair while afterwards our cash flow was weak and now its strong. In this edition you can see how you can be the master of your own cash management.

Someone once said, ‘Cash is King’. Whilst this is a throwaway line nowadays, lack of cash is one of the main reasons that business fail and eventually go bankrupt.

A simple analogy is your personal budget. You earn money, you have monthly bills and expenses and what you have left you can save or spend. If you spend too much you need an overdraft, and if you cannot pay your debts you are declared bankrupt. The same is true of businesses but it’s a bit more complex.

Three reasons to have a detailed cash flow budget and forecasting tool:

  1. Cash flow

Strong and increasing revenue does not always mean positive cash generation. Have you ever faced a situation where your revenues are growing year on year, but your cash is getting less and less? Wondered why?

There are many reasons but here are three to start with:

You have taken on more customers, whether riding school or livery, but they are taking longer to pay than expected, however your costs have increased, and your suppliers still expect payment under their usual terms. Growth does not mean cash.

This can be avoided – cash collection processes must be constantly reviewed and fed into your forecast model

You are spending in advance of revenue generation. For example – your detailed marketing plan requires increased sales costs, advertising, marketing materials, staff time and so on, and after a few weeks or months you start getting more customers which is great news! But how did you bridge the gap of cash outlay before the cash started coming in? All that investment had to come from your current cash reserves which is now weakened, perhaps permanently. Growth does not necessarily mean cash generation in the short term or even the medium term.

What did your cash flow forecast tell you and why wasn’t this forecast initially?

 You are growing progressively now, so you want to accommodate another horse which requires another stable, which also means grazing paddocks, which means land, so more fencing, the horse needs immediate care, feed, staff time etc. This means capital investment and unless you have a strong cash flow or reserves you cannot afford to expand. Maybe you need to borrow the money, but your revenue does not come as quickly as expected, and then you have no cash left. Growth can spell disaster and eventual business failure.

Your cash planning let you down we well as your business development plan

2) Reinvestment without borrowing

You have decided to grow your business which almost certainly needs cash to increase or expand your assets and facilities. Your cash flow  forecast indicates a requirement of £X over Y time to fund the gap between the expansion and the new business initiative generating cash. Having strong cash flow means you can make those investment decisions with greater peace of mind. Those growth and business expansion plans can now be put into action and using your detailed cash flow budgets and forecasts (do you know the difference?) you can spend wisely knowing your cash flow is strong enough to eventually capitalise on your planned growth; or it is able to withstand a longer than expected increase in revenue. There is much more to discuss here and will be the subject of future discussions.

3) Emergencies and downturns

‘we had unforeseen emergencies’, ‘there was an economic downturn and we could do nothing about it’, ‘we just ran out of cash, it wasn’t our fault’

Have you written and updated your SWOT and PESTLE analysis?

We all have unexpected bills, in business these can be large – legal bills, emergency repairs, vet bills and so on. Also, external factors such as political decisions, legal changes, even local crop failures for hay, straw and feed can create business difficulties. Without cash on hand to overcome these uncertain difficulties may mean the business has to downsize or is forced to borrow or must declare bankruptcy. With cash on hand the business is better placed to overcome these difficulties.

Cash planning, forecasting and budgeting requires constant detailed and forensic analysis and with the right tools your business future can be made much clearer. Cash planning will be the subject of future blogs and will also be covered in the upcoming events that we are planning.

My intention is to continue to publish these blogs and articles outlining key strategies for building a really successful riding centre. Why would I do this? Because over the last seven years, my wife Jo and I have built up what we think is a very successful enterprise that we are proud of  We made our own mistakes and learnt a lot on the way.

But when we started there was no help anywhere, from anyone in the riding centre market. A few marketing people but no real insider business knowledge specifically for riding establishments. Well now there is so stay tuned.