Cash flow issues? Ciaran O’Donnell, founder of the Virtual FD, gives simple three-step solution to help businesses understand their finances and plan better

How do you forecast your finances effectively during a time of economic uncertainty?

Cash flow issues? Ciaran O’Donnell

How do you forecast your finances effectively during a time of economic uncertainty? 

Ciaran O’Donnell, founder of the Virtual FD, joined us on the second day of Elite Business on 12 March as the keynote speaker for the Financial Management talk, teaching business leaders how to manage their finances better. He spoke about why it is important to set ‘alarms’ for your cash flow, and why forecasting is the bread and butter of financial management. He also revealed the importance of understanding the factors that lead up to cash flow problems, and how to combat them before it is too late.  

As a business, it is vital to keep control of your finances. Businesses that fail usually cite cash flow as the main reason for their collapse. What are the reasons businesses reach that point? Cash flow issues are merely the result of something that has gone wrong in the firm, rather than a cause, Ciaran said, and it is important to investigate those factors that lead to the end. 

What’s the number one reason businesses fail? More often than not, we say cash flow or ‘running out of cash’ at the top of the list. Businesses fail for a whole host of reasons including not enough sales or income and Covid-19 has been a huge impact for so many, but other reasons can include not able to get profit at your product or service, maybe your marketing wasn’t good enough, maybe the business was too early for the market. Maybe the technology just doesn’t work. Maybe the business couldn’t or didn’t pivot in time. So, there’s a whole host of reasons. The running out of cash flow is merely just the endpoint, it’s not always the real reason. 

Ciaran is now on a mission to make 1000 CEOs make their business a success and has shared three simple ways to make you a better business leader. Firstly, company CEOs need to have alarms in place especially when it comes to cash flow. Businesses need to understand their finances at present, but it is even more important to forecast finances. Predicting future cash flow shortages will help you plan better and find effective solutions to combat the problem ‘ rather than finding out when it’s too late, which can be very disruptive for your business. 

The CEOs I work with aren’t shy to take action, if they know something or it’s on their to-do list they’ll tend to do something about it, Ciaran explained. But, that’s only possible with the ‘knows’. What about the ‘unknowns’? The unknowns need alarms because if something does go wrong, you’re going to find out too late. So, if your business is going to run out of money in 28 days, you have 28 days to do something about it. But, finding out in the day itself is going to be very stressful and very disruptive. 

Ciaran also advised CEOs to never trust their financial forecasts without a complete PnL (profit and loss statement). If the numbers aren’t precise and your sheet does not balance, your financial data may be misleading and inaccurate ‘ and therefore, you cannot trust that as a true reflection of your cash flow. I have a very simple rule for CEOs ‘ never trust a PnL (Profit and Loss statement) without a clean and complete balance sheet, Ciaran said. Because if your balance sheet is not clean, correct and complete, you’re looking at an incorrect PnL, and probably, a misleading one. Your balance sheet is also the starting of every cash flow forecast, so your balance sheet must be kept up to date because, for most businesses, the next 30 to 45 days of their cash flow is sitting on their balance sheet. 

Sometimes the best results come when you step out of your comfort zone. As said by Albert Einstein, ‘insanity is doing the same thing over and over again and expecting different results’. However, change may feel overwhelming and daunting, especially if it’s unfamiliar or complex. Therefore, business owners need to seek help when managing their finances, and that can include hiring someone to help them break down the next steps to success. 

The CEOs I work with come from a mix of backgrounds ‘ sales, products, brands, tech, or just years of experience in a particular sector. They all left their comfort zones. I do, and you do too. Mine is my inbox and Excel. I’ve become mildly obsessed with making sure that my comfort zone is where I get things done. So, my inbox is my to-do list, it helps me know what my next step is. Such a simple question just to make sure something gets done by me or someone else. Sometimes the next step is outside your comfort zone, and sometimes it’s too daunting and just needs to be broken down and simplified. 

If you want to achieve the best results, ask the best people for help. It is important to take financial advice from someone who is experienced in the field and can bring a different perspective, help you plan better and find a suitable solution tailored for your business. Some businesses have structured boards and advisory boards, Ciaran explained. Other CEOs and business owners have their mentors and trusted advisors. Whether you have something structured in place or not, it’s worth ensuring discussion and brainstorming is all very fresh and healthy. But when it comes to advise, I thoroughly recommend you take it from someone experienced and qualified.

Latifa Yedroudj
Latifa Yedroudj

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