Memorize this statement: "Cash flow is the lifeblood of all businesses. Without cash flow your business will die."
I stress this statement often when I talk to appraisers during conferences, meetings, and webinars. Why? Because you are a small business owner first… and an appraiser second! Appraisers do a remarkable job and take great pride in their appraisal work. I recommend that you also take this attitude and approach towards your appraisal business, particularly your cash flow.
What Is Cash Flow Forecasting
Cash flow forecasting is defined as planning what cash will come into the business in order to ensure that outgoing cash is covered and does not exceed what's available. Having this knowledge of what your cash is doing in detail is essential especially to appraisers. This awareness ensures you have the necessary funds to operate your appraisal business.
Aside from making sure you have enough cash to sustain your appraisal business, improving your cash flow forecasting has other benefits. Here are three important reasons why you ought to improve your cash flow forecasting:
Grow, Grow, GROW
Growing your appraisal business requires sound financial planning. As your operation increases in size, it will need to be supported with sufficient cash to stay afloat. But without proper future cash flow forecasts your appraisal business will experience short-term cash deficiencies. It is this stage where the majority of appraisers I talk to are in – stuck in a cycle where money comes in but quickly goes back out. This crippled state eliminates any opportunity for growth.
Prepare For Uncertainties
An appraiser from Florida once told me: "In life there are lots of uncertainties. As an appraiser that's an understatement!" He was referring to the current climate of the appraisal profession and as he stated "uncertainties ahead of us." It is this perspective that he has chosen to pay himself just enough to get by and saving any excess cash for a rainy day.
If you do not have excess cash flow now, you will not have the ability to grow your working capital and prepare for the future. Improving your cash flow forecasts gives you the ability to see if you'll have the capital to cover what lies ahead.
Negative cash flow can quickly take you towards a downward spiral to catastrophe regardless of the size of the appraisal operation. For instance, consider the recent AMC closings such as JVI, NREIS, and ES Appraisal. Like all businesses that become insolvent, poor cash management is the ultimate result of these organizations' failure.
Take control of your appraisal business now by simply getting accounts receivable paid earlier. For example, if you improve collection by a week, then you would have the same cash as you would today AND what you would normally have a week from now! This compounding effect can have a substantial outcome on your appraisal business's cash over time.
How To Get Started
Again… "Cash flow is the lifeblood of all businesses. Without cash flow your business will die."
Whether you're a large appraisal office or a one-person operation, now is the time to improve your cash flow forecasting. Tax season is a great time to reassess your appraisal business's finances because it allows you to see how your appraisal business did financially in 2012.
Revisit your cash flow forecast to ensure its accuracy and plan for the future. If you do not have a cash flow forecast or do not know how to start one visit with your CPA. You can also check out Inc.com's Cash Flow Forecast Tool to help you get started.
Improving your financial management through cash flow forecasting will help your business grow, prepare for uncertainties, and take back control of your appraisal business.
Have any comments or would you like to submit content of your own? Email Jim@appraisalbuzz.com