For an insight into cash flows, we chatted to the team behind Black Milk, a popular dessert cafe based in Manchester. Now in the process of growing to multiple locations, a large part of their time is taken up by calculating the viability and ROI of new proposed locations.

Expanding through both equity holdings and franchising, they are now looking for talented hospitality managers to buy a Black Milk franchise. As part of this, they’ve been developing cash flow forecasts that can work for these businesses - and here's how. (Psst - want to find out more about Black Milk and their journey? Check out their upcoming event in Manchester!)
 

Black Milk - Cash flow forecast

What does a ‘cash flow template’ mean to you?

Cash flows are probably the most fundamental part of a business plan. You use this document so you make your mistakes in Excel, not in real life! As an entrepreneur you will naturally be full of ideas for products and how to market them. A cash flow forecast can quickly show you if you have a viable business or not.  I will always start by calculating my break-even point (we call them "horror figures"). We then make a second one that, based on our best judgement, we hope to achieve. 

Ultimately sales projections can only ever be a guesstimate. It is therefore essential to gather as much data as possible to base your assumption on.

The idea of creating one can be a bit daunting. Where do you start?

I tend to start with the costs as these can calculated with near-certainty. Fixed costs like rent, insurance, leases, loan repayments will remain the same throughout the year. Variable costs like staff and stock will vary with sales. Using the hospitality business as a guide, these will both account for around 25% of sales each.  

With the costs in place, you can now quickly see how much you need to sell to break even. Can you viably achieve this sales figure? If not, get back to the drawing board!
 

What are the key elements?

Cash flow 

Revenue - Costs = Profit

The most fundamental calculation of business: how much are you going to take, and will you turn a profit on this after costs?

Sales Assumptions

Business are ultimately built on the demand for their product, not their ability to supply.

Black Milk - Cash flow forecast

How many units do you think you can sell, how much will you make from each transaction (Gross Profit), and what data or assumptions is this figure built on?

Personal Survival

Ultimately you're looking to looking to run a business, not just create a job for yourself!

I'd be pretty comfortable if I was working as our cafe manager, however my goal is to create long-term value, not short-term profit. My time is spent creating the systems and cafes that allow our team to achieve 300% year-on-year growth. This section shows you your cost of living as subsistence levels. Sometimes a side hustle or consulting work are a good ways to add to your income, but do not lose focus on your ultimate goal.

What tools / software do you use to create one?

Excel or Google Sheets - an essential tool in any entrepreneur's business planning.

Xero Accounting Software - If you're already trading, its so important to have a grasp of your day-to-day figures. Its surprising how many entrepreneurs couldn't tell you what profit they made last week.

Market research - Speak to similar businesses and try and gauge how well (or badly) they do 

Network - You are probably not the first person to enter this sector - learn from those that have gone before!

Black Milk - Cash flow forecast

What’s the biggest lesson you learnt by creating one?

It wasn't my business, but I've seen others pick projected sales figures out of thin air based on what they could afford to make with initial funds. Your business needs to be demand-led, not supply-led.

Be very realistic, and base these figures on as much data as possible. Knowledge is power!

 

What has been the benefit of a custom cash flow template?

Each business will have its quirks and variances. Virgin StartUp cash flows will often be for new businesses. My cash flow template uses last year's figure as a base. I then work to create 30% like-for-like sales in our existing cafes.

Any other tips?

Find an accountant that can help you with this. My accountant Karem, at Danegeld CPA, has been invaluable in my progression as an entrepreneur. I used to fall asleep during business finance and accounting lectures at university. Now it's my money that is on the line, this information is riveting to me. Not many people set out in business to study spreadsheets -  acknowledge this and find someone that can walk you through the process!

The information contained in this website is provided for information purposes only and is not intended to constitute legal advice on any matter.  Use of this website is at users own risk and is not intended to create a lawyer-client relationship between Virgin StartUp and any user. Information displayed on this website is provided “as is” and Virgin StartUp does not provide any express or implied warranty or representation concerning the information, including but not limited to the accuracy or appropriateness of the information. Virgin StartUp recommend that users seek their own legal advice before taking (or refraining from) taking any action and do not accept any liability in respect of any actions taken or not taken based on any or all of the information displayed on this website to the fullest extent permitted by law.