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Cashflow Oxygen – make sure your business can breathe

Published On
5 March 2023
Category
Business tips & insights
small business

Why is cashflow important…?

What is cashflow? Read our article here to understand the wonders of managing your cashflow. In summary, managing cashflow is one of the most essential parts of any business. In fact, failure to adequately manage cashflow and finances is a lead indicator of why Sole Trading and Micro businesses become insolvent. The Australian Bureau of Statistics (ABS) estimates that 40% of Australian Businesses fail in their first five years of trading due to failures in financial management (namely cashflow)

The below oxygen calculator (to make sure your cashflow is taking healthy breaths) helps work out your available cash flows to make sure your business stays afloat. The metrics within this report should be tracked on an ongoing basis (usually recommended to be updated every month).

Please note that this calculator is for guidance only, Sole always encourages the use of advisors to make financial decisions as your personal circumstances may differ.

Days of Oxygen – This Month

DOO – Days of Oxygen – is a measure of how much breathing space you have if revenue drops or ceases.
For start-ups and early-stage companies DOO is your “Runway”, a value that investors want you to always be mindful of.

This is the amount of cash you have available for use (where you don’t need to repay anything such as a credit card or term depository)
All your open invoices (i.e. sales revenue that does not include interest, grants, saleable assets, etc.)
Work that you will realistically expect to invoice in the next 30 days
Costs that you will need to pay in next 30 days (for goods/services you are selling/rendering)
Any other outstandings, etc.
Fixed costs: Your estimated one month’s (30 days) operating expenses (e.g. rent, internet charges, etc.)
$
Cash available: your “buffer”
Your breathing space or runway

“Best practice” = 120 days DOO
* For added “insurance”, omit or discount, WIP

Forecast – Next month

Do this as a rolling forecast

%
$
%
$

** A realistic safety margin should be at least one month’s OpEx

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